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7
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Convertible Debt

TheFunded.com Advice

Posted by Anonymous on 2007-09-11

Tags: Preparation Convertible Debt

PUBLIC:

I've had a few people recommend this as a viable (and even preferable) option for us. I know there have to be others out there who are looking for honest feedback as well.

Experienced entrepreneurs - post your thoughts (as comments) on whether its a good, a bad, or (as I suspect) a conditional thing.

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Pitch Competitions Shouldn't Charge Entry Fees

TheFunded.com Discussion

Posted by Anonymous on 2011-04-06

Tags: Pay to Play

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"You are Just Founders" by Steve Blank

TheFunded.com Discussion

Posted by Anonymous on 2010-05-21

Tags: Funding Sources Article Founders

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1
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Early Stage Investments All but a Myth ?

TheFunded.com Discussion

Posted by Anonymous on 2010-01-26

Tags: Funding Sources Early Stage Myth

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Request to All: No More Anonymous, USe a Nickname

TheFunded.com Discussion

Posted by Anonymous on 2009-09-21

Tags: TheFunded.com Requested Features

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Using Finders / Consultants to Help Raise Money.

TheFunded.com Advice

Posted by Anonymous on 2009-06-13

Tags: Funding Sources Intermediaries

PUBLIC:

Entrepreneurs build companies and hope to make money.
Investors invest and hope to make money.
Customers buy products and hope to make money.
Advertisers advertise and hope to make money.
Employees work and hope to make money . . . . . . . . .

Using a Finder or Consultant to help you raise money is perfectly OK.

A Finder or Consultant who asks for any money upfront is not OK. If the Finder / Consultant doesn't believe in your product or service enough to base his / her compensation on the successful raising of money - then why should an investor believe in what you are doing.

The only time a Finder or Consultant should be paid is if you need extensive help with your business plan, etc. You can avoid this by creating a Board of Advisors (one of whom can help with your business plan) that would be paid in stock options down the road.

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How to Search?

TheFunded.com Discussion

Posted by Anonymous on 2009-04-23

Tags: TheFunded.com FAQ Requested Features

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Angels May Be a Better Option for Early Stage/Low Capital Needs Businesses

TheFunded.com Discussion

Posted by Anonymous on 2009-04-10

Tags: Funding Sources Angels

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NYC Venture Funding or Lack Thereof...

TheFunded.com Advice

Posted by RichieBlueEyes on 2009-03-12

Tags: Venture Business Economy East Coast Bootstrapping

PUBLIC:

So the NYC investment climate is going through serious issues. The angel market has drastically changed as most angels are from the world of finance and no longer have disposable investable cash and the few angel deals that are getting done are at far lower valuations. On the venture side, 'risk' is not being funded. Unless you have revenue (and don't need money) or extreme traction it's probably not worth the time raising money. Sure people who have made money for that exact investor in the past can still raise some money but beyond that, unless you're 'perfect' you'll have a hard time. Even then expect 2-3X liquidity preference, restrictive employment agreements and flat to down rounds even for high growth companies. I saw a company that is trending towards $20MM in revenue in a high growth category doing a flat round at a 3X liquidity preference. Times are tough. Time to call on the old friends and family and Bootstrap. It will not be fun. Still talk to investors and get coverage so they know you so if you happen to hit a stroke of luck or genius and take off, you can create some competition and maybe get decent terms but don't expect to easily raise money. Sure, you can get meetings and maybe even some feedback, don't expect an easy check from angels or VC's in NYC. Seed Capital has been crushed, Angel money is crushed and Series A money is trending towards Series B money or to pump into existing companies or entrepreneurs proven to that investor.

With all that said, always keep pitching but Bootstrap your ass off.

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Finding Money Online Through Financing Web Sites

TheFunded.com Advice

Posted by SevenX on 2009-02-11

Tags: Funding Sources Intermediaries AngelsSoft

PUBLIC:

[The Founding Member has suggested that this post, originally written in response to a query on the discussion board, be reposted here for broader visibility.]

No web site site can promise to find you money. Period. In fact, perhaps the best way to figure out whether a site is legitimate is the extent to which it DOESN'T promise to find you money!

Of the various possibilities out there, there are realistically four categories, in pretty much the following order:

1) Angelsoft.net: doesn't promise anything, is primarily a site that investors use themselves, doesn't expose any of your information publicly, has by far the best free search engine for legitimate early stage funding sources, and lets you prepare and send applications and videos for free directly to a limited number of screened, legitimate investment groups. If you want to pay $250 extra, you can promote your offering by posting it in a pool that 15,000+ accredited investors (and ONLY accredited investors) can browse through. They publish their stats online, and they show that between 1.3% and 5% of posted deals get funded. So your odds are between 20:1 and 75:1 against. (As Winston Churchill said about democracy: "It's the worst form of government there is...except for all the others.")

2) Vator.tv: the biggest public pitch site, legitimate, but wide open. Good news is that it's free, and that you'll likely get a lot of views of your video. On the other hand, very few of them (if any) will be from legitimate investors. Instead, you'll probably be approached by more than a few service providers, which may (or may not) be what you want, and scammers. But it's good for general exposure, and they are adding a bunch of neat new features, including micro-blogging for company updates so that interested parties can follow your corporate news. So if you're not concerned about the public nature of the site (or if you think that's a good thing), it makes sense. (Just be very, VERY wary of any "funding" leads that result from your posting.)

3) The legitimate attempts at investor matching: there are VERY few of these out there (and virtually all are not in compliance with SEC regulations) including for-profit ones (such as FundingUniverse) and not-for-profits (such as ActiveCapital (the only truly SEC-approved, legit one) and TheFunded's sponsor, IdeaCrossing). They mean well, but have few investors (usually starting from a local group or area: Utah in the case of FundingUniverse, Cleveland, Ohio for IdeaCrossing), and the for-profit ones are not cheap.

4) Everyone else: there are several dozen of these (perhaps even a hundred or more), ranging from out-and-out scams (any one in which you get an instantaneous response promising money, asking for money, or asking for financial information), to sites that function primarily as lead-generators for service providers. I don't personally know of a single company that has had a good experience with FindThatMoney, FundFinder, GoBigNetwork, RaiseCapital, Go4Funding, etc. etc. etc.

The bottom line is that raising capital is very, very (did I say VERY?) tough, particularly in this economy, and only a teeny, tiny fraction of companies will EVER get outside equity financing. The stats suggest that's something like 0.25% for venture money, and 1-2% for angel money.
So anyone who promises you quick and easy money is either well-meaning-but-delusional (the rare exception) or a scumbag-with-a-hand-heading-to-your-pocket (the vast majority.) As a first pass heuristic, if an "angel group" is not listed on either the Angel Capital Association web site (http://www.angelcapitalassociation.or...) or the Angelsoft Group Finder (http://angelsoft.net/entrepreneurs/an...) you should be extremely wary of any claims they make...but then, of course, you would be anyway. Right? Right??

Remember the immortal words of Robert A. Heinlein: "There ain't no such thing as a free lunch."

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Layoffs are Coming to Venture Capital Soon

TheFunded.com Advice

Posted by fnazeeri on 2009-01-04

Tags: Venture Business Crisis

PUBLIC:

I just got off the phone with a friend who is founder/CEO of an early stage medical device company. His company is doing well and recently received a couple of term sheets for his first institutional round. As he was going through the process of negotiating with the potential investors, he said they were trying to set his expectations low. He told me a story about how one investor recounted tales of startups making mass layoffs, cutting back everywhere and generally dire conditions (basically sending the message that he should be happy to be getting an offer).

So my friend responded, "Wow, that sounds terrible. This must be really affecting you badly...how many people have you had to layoff here""

The VC stared at him with a bewildered look.

Read more here.

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Not Sequoia's Presentation

TheFunded.com Discussion

Posted by Anonymous on 2008-10-20

Tags: Venture Business Crisis

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A Primer for Early Stage Fundraising

TheFunded.com Advice

Posted by J on 2008-09-14

Tags: Preparation Strategy Early Stage

PUBLIC:

Raising money for early stage companies has become more challenging. Traditional angels are more organized and difficult to reach. Most early stage venture funds have exited the field, and the remaining funds are (1) overwhelmed, (2) extremely focused, (3) incompetent, or (4) incubators.

Within this challenging environment, it is still possible to succeed if you know the "new" rules of the game. Here are some tips to consider with your early stage fundraising.

Structure: Almost all professional North American investments are made into Delaware C corporations. Lawyers greedily sell LLCs to charge you for conversion. If needed at inception of your fundraising, convert to a Delaware C corp structure with 2 to 5 million authorized shares to avoid closing friction.

Geography: Most angel and early stage investors focus on a strict investment region so that they can spend time with portfolio companies. Unless you are SERIOUSLY planning to move, don't bother to pitch a firm more than 100 miles away in the early stage. It's literally a waste of your time and theirs.

Traction: Every early stage investor will want to see traction before they invest, whether that is a prototype, a patent, or a committed team of experts. Gone are the days of funding a dream and a PowerPoint pitch. You alone are going to need to make the initial investment in your idea, committing both time and money to get your idea off the ground.

Relationship: Having a standing relationship with your early stage investors makes a big difference, so start attending regional entrepreneur networking events as soon as you have an idea. Don't wait until your idea is ready for prime time, as this is already too late.

Format: Avoid embarrassment by knowing about round types and raise amounts. A friends and family round is usually a purchase of common to get the company off of the ground, but can also be part of the angel round. Angel investors tend to participate in convertible debt or equity rounds that raise between $100K and $1.5 MM. Venture capitalists lead Series A rounds for $750K to $5 MM in preferred equity, sometimes more. The average Series A round varies widely by sector and geography.

Focus: More and more early stage investors are focusing, and they will rarely invest in competing businesses. This means that you should do your homework before pitching a fund. Just check their portfolio page to get a sense of what they are doing.

Pitfalls: Be very weary of convertible debt from venture funds, since, if that fund does not invest in future rounds, you will be completely unable to raise further capital. Avoid corporate venture firms, as these investors scare off other professional investors, since everyone will ask why the big parent corporation just doesn't buy you.

PRIVATE: Members Only

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Stereotypes

TheFunded.com Advice

Posted by fnazeeri on 2008-06-24

Tags: Venture Business Humor

PRIVATE: Members Only (270 Characters)

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How Liquidation Preferences Work

TheFunded.com Advice

Posted by fnazeeri on 2008-05-14

Tags: Negotiation Terms Liquidation Preferences

PUBLIC:

Liquidation preferences are a key term in the definition of preferred stock (it's generally acknowledged to be the second most important economic term). Earlier, I wrote about this and other terms in a post on negotiating a term sheet, but here I want to give some specific examples to illustrate why this is such an important term.

You probably already know this, but it's worth repeating that liquidation preference refers to the procedure for paying investors off in a sale or winding up of the company. It typically includes two components: a preference (which is an amount that gets paid before others) and participation (the ability to "double dip"). Many folks have written on preferences in terms of definitions, so instead I'm going to give some simple examples.

For simplicity sake, imagine a VC has $10MM invested in one class of preferred stock in a company, owns 40% and the company is sold for $50MM. Here’s how the three different scenarios in my previous post work (in a specific example):

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I Do Not Want to Make a Mistake; I Do Not Want to Get Fired!

TheFunded.com Advice

Posted by MedTech Expert on 2008-01-04

Tags: Venture Business Termination

PUBLIC:

Can you imagine hearing this from a VC" Well, I did this past year and just about fell out of my chair when I did. Granted this was a fairly inexperienced partner who was earning his/her wings. Nevertheless, the risk tolerance of this individual will be his/her undoing! And yours too if he/she joins your board as a major investor.

Unfortunately, I have seen more and more of this behavior over the past few years which furthur fuels the fire that today's VCs are very different than those who led this industry in the 80s and 90s.

Make sure you figure out where the VC you are talking to is in the pecking order of his fund before you proceed or you will pay with time and frustration.

This business, particularly early stage ventures, is not for the feint of heart. How these folks think the venture business is in their comfort zone is beyond my comprehension. They would be better off serving as loan officers in a bank.

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Reference Page: Most Common Investor Techniques for Screwing Founders

TheFunded.com Discussion

Posted by Anonymous on 2010-01-10

Tags: Funding Sources References Investor Techniques

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Golden Seeds and Other Angels Get Real

TheFunded.com Discussion

Posted by Anonymous on 2009-10-01

Tags: Funding Sources Angels Golden Seeds

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A Very Interesting Take on "Idiot CEOs"

TheFunded.com Advice

Posted by nkannan on 2009-05-13

Tags: Venture Business CEO

PUBLIC:

I saw a blog post by Georges van Hoegaerden titled, "Idiot CEOs." Here is the link:

http://www.venturecompany.com/opinion...-entry-id-148

A very amusing post that makes us CEOs think about financing alternatives to VCs.

Your thoughts?

PRIVATE: Members Only

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Israeli VC's

TheFunded.com Discussion

Posted by Anonymous on 2009-03-22

Tags: Venture Business Israel Fund Diligence

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K Waves, an Interesting Perspective on Where We are at with the Current Crisis

TheFunded.com Discussion

Posted by Anonymous on 2009-02-09

Tags: Venture Business Crisis Economy

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Warning: "Inside" Rounds

TheFunded.com Advice

Posted by Anonymous on 2009-01-25

Tags: Funding Sources Strategy Valuation Crisis

PUBLIC:

As it is becoming harder to raise capital from venture capitalists, existing investors are facing situations where they need to lead new rounds in their own portfolio companies. This presents a big problem for valuations, especially if an investor only has convertible debt. Recently, I've heard a few stories about existing investors promising to lead a round, then pulling out or dramatically changing the terms. Worse, investors will sometimes string you along with a singed term sheet until you are out of cash, and then completely change the deal to take control.

Here are some tips if you think that you are going to need money in the next 18 months.

Know where insiders stand: You need to know where if your insiders will participate or lead a new financing event, and you should also ask them what their specific expectations are for your company performance. Assume that any inside round will be flat.

Pursue other options: Even if your insiders agree to lead a round, you should do your best to have an alternative financing option available. You will never get a fair price for your equity from insiders, since they are pricing, selling, and buying the equity at the same time and since they see all the warts and bruises.

Raise now, not later: Don't wait to raise money. Raising will take twice as long and will be twice as hard in this market. Try to raise enough capital to operate for more than 48 months, if you can.

When in doubt, do debt: If things are not moving fast enough and you have only three or four months worth of cash left, press your existing investors to do a convertible debt round that will give you eight to twelve months of low growth operating capital.

Insider sheet to attract outsiders: If everything else is failing, you may want to have your insiders draft a term sheet with a lot of room for new investors to participate. It's often easier to find outside investors with a "legitimate" term sheet in hand.

Good luck!

PRIVATE: Members Only

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Sequoia CEO Warning Letter: Irresponsible or Cunning?

TheFunded.com Discussion

Posted by Anonymous on 2008-11-14

Tags: Venture Business Crisis

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Bubble 2.0?

TheFunded.com Discussion

Posted by Anonymous on 2008-09-13

Tags: Venture Business Bubble

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The Bubble is about to Pop

TheFunded.com Discussion

Posted by Anonymous on 2008-01-22

Tags: Market Conditions