Posted by SevenX on 2009-02-11
[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."PRIVATE: Members Only
Posted by Anonymous on 2009-01-18
Tags: Operations Vendors Development
For those who have recently been funded (for the first time) or bootstrapping with own funds, I write to you personally as fair warning. Be careful putting all your eggs in the performance of one vendor as key to your launch strategies.
We did just this.
Our team worked with a technology vendor to develop our application from Sept 07-Jan 08, which was when this company was to launch our product. It never got completed.
We hired a third party project manager to attempt at salvaging the project and he worked with them until April 08 ~ still nothing. All the while the revenue we were taking in (from our previous beta application) dried up.
The reason I am sharing this is because I just read a post about lawsuits and how long they take / expensive they are. So true. We canceled our contract in April after they still did not perform or deliver. Per our contract they still had 30 days to deliver. Instead they placed a lawsuit on us.
The short of it is over the past 9 months we've dived into financial heartache. No product delivered, nothing $$ returned to us, legal bills and no revenue.
Our contract is pretty iron clad - even encompassing a penalty fee for every day they are overdue with the project. But, how can you fight with the best legal team (ours) against a vendor that has an essentially free team with lots of time on their hands?
My suggestions: if I had this to 'do over' I would say --
My due diligence would have been much more in-depth to include our attorney pulling a complete past history at the county, state and national level of this firm. I would have requested more direct client referrals to check out. Also, I will never give money to a firm again until a product is delivered - no matter how large the scale. We actually gave them a security deposit which we've not seen since.
Lastly, I would have actually hired my own internal team vs a firm - even if it were temporary, to complete this project. Our own team would have been underfoot and where I could reach out, touch base and keep dibs on their time management.PRIVATE: Members Only
Posted by fnazeeri on 2009-01-04
Tags: Venture Business Crisis
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.PRIVATE: Members Only (2185 Characters)
Posted by fnazeeri on 2008-12-05
Tags: Operations Bankruptcy Crisis
I just finished writing this post about how startup failures are up. Not surprisingly Q4 2008 (already) is the biggest month for startup failures in the past 10 quarters.PRIVATE: Members Only (603 Characters)
Posted by sparrow on 2008-11-20
It's an easy trap to fall into. You've labored on your powerpoint presentation, you got nice graphics into it, you followed Guy's advice http://blog.guykawasaki.com/2005/12/t..., you practiced your pitch, and now you're ready to rock and roll.
You're a little nervous but feeling good. You go in and start your presentation, and you're on slide two, and the VC asks "What's the business model here""
No problem, you're ready for him. "I'll get to it on slide 7, let's go through the product first."
Stop! I know it' s hard to change the flow, but expect to do it. Go ahead and jump to slide 7 and give him 10 seconds to read the slide and then explain the model. 10 seconds should be enough since you don't have that much text on a slide, or you shouldn't and even if you did, it wouldn't matter since most VCs have ADD and won't take more than 10 seconds to read anything. The one exception is anything related to finance. But to get back to my main point (VCs are not the only ones with ADD), focus on what the other side is interested in and answer the questions in the order that they are presented.
Usually, one question will lead to the next and you'll find that you're referring to the presentation as support material rather than guiding the discussion.
So why do you need the powerpoint deck" As I just mentioned, it's support material, but it also helps you make sure you've covered everything. When things slow down in the conversation or when your time is almost up, go back through the presentation, and double check that you haven't missed any critical information.
As part of the conversation you'll hear some criticism or doubt about your product, your direction or something else in the presentation. Your gut reaction is to argue, mine is. They're not getting it. Stop yourself. Instead ask question to help you clarify why their thinking is different than yours. There are several reasons to do this.
1. They don't know your company and probably the space it's in nearly as well as you do. On the other hand, they've been exposed to a lot more companies than you have. You're getting free advice. Listen to it and try to absorb. I've talked to three VCs in the last 4 weeks, and two of them gave me good insight which helps me fine tune my model.
2. If they have this objection other VCs might have it too. Listen, learnd and maybe next time you do a pitch you'll be better prepared to answer this issue, or tackle it in your presentation.
3. Arguing has the potential of making you look defensive and uncooperative. Will they really want to invest in someone with these traits.
Having said that, if they challenge one of the basic assumptions of your plan and you've considered and rejected their arguments, it's perfectly OK to present this. "Yes, we've heard from other people that they thought that the markets can't be any bigger than 250,00 users, but actually a Gartner report in Feb of 2008 shows that there are at least 5,000,000. The reason the market is understimated is that most of these people are in Asia and the web analytics don't count them."
Here you scored a point. You thought of the problem researched it, and can provide supporting data.
In summary, try to reach a good balance of give and take. Talk about your product, show that you're excited about it, but listen. I certainly try to.PRIVATE: Members Only (99 Characters)
Posted by J on 2008-09-14
Tags: Preparation Strategy Early Stage
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
Posted by J on 2008-09-13
Many entrepreneurs send a long introductory email and attach a ton of information when contacting an investor for the first time. There is the infamous multi-paragraph email and the 30+ slide PowerPoint that includes information on the vision, strategy, technology, and financials. Sometimes there is also the executive summary and even a full business plan.
The reality is "less is more." If you can say three words and get to the next meeting, then you have succeeded. Send just enough information on the business in the body of an email to get to the next encounter. Here are some reasons why:
Relationship: Investors want to get to know the people involved as much as they want to know the business details, so most investors want to have a few interactions before making any decision. It's very rare to close a financing in one meeting and even less likely after one email. Your goal should always be to get to the next encounter.
Mistakes: Providing too much information gives ample opportunity for a professional investor to find mistakes in your work. An active investor will see dozens, if not hundreds, of deals in one month, so it's likely that you have less perfect information than they do. Don't be judged too early on by perfectly reasonable mistakes caused by your lack of information.
Trash: Given the large volume of dealflow that professional investors are seeing, professional investors are likely to look at simple deals first, coming back to deals with a lot of clutter and materials later on. If you overload your initial email, it may be either (1) thrown immediately in the trash or (2) dumped on a junior associate "to process."
Confidentiality: Your initial materials, even your initial email itself, will likely end up with a competitor and certainly with another investor. Investor confidentiality is correlated (1) the length and (2) the strength of your relationship with that investor. Even in cases of an excellent relationship that has survived over time, confidential information still manages to leak.PRIVATE: Members Only
Posted by fnazeeri on 2008-06-24
Tags: Venture Business Humor
Posted by fnazeeri on 2008-05-14
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. Hereâ€™s how the three different scenarios in my previous post work (in a specific example):PRIVATE: Members Only (2424 Characters)
Posted by fnazeeri on 2008-05-12
Tags: Negotiation Terms
By the time I was in the 9th grade, I had been playing chess for a few years (as in I knew the rules) but I didn't play seriously and more often than not I lost. Then one day at the library (remember, pre-internet) I happened to find a book on chess. So I read the book and almost overnight I became one of the chess "stars" in high school. In one of the funnier incidents, I started playing chess during lunch hour and was "hustling" money which on one occasion resulted in a kid pulling a knife on me after I relieved him of a few bucks. True story.
What was it in that book that allowed me to take advantage of the situation" Well, there was a lot of basic stuff, some general rules and even some strategy, however, the most useful bit of information, initially, was a table on the relative value of pieces. You know, a pawn is worth 1, a knight/bishop 3, rook 5, a queen 9 and the king "infinite" unless it's the endgame then it's more like a 4. Experienced players have a "feel" for this from many games played and they can also break the "rules" by, for example, sacrificing a queen for a rook to get better position. But these are all things learned from experience and best not tried by a novice. If you are new to the game, you have no idea. When you are starting out, having some rules of thumb can make all the difference between winning and getting hustled.
What does this have to do with negotiating term sheets" Well, I think a lot of newbies get hustled when negotiating term sheets because they don't know the relative importance of the various terms. Have you heard the joke about the VC who says, "I'll let you pick the pre money valuation if I get to pick the terms"" My goal here is to provide a framework that gives relative value of various terms on a term sheet and allows you to compare them on two dimensions: economics and control (or as my friend Noam Wasserman likes to say, "rich" versus "king"). In the same way that a chess grand master doesn't need rules of thumb from someone else, if you're a seasoned negotiator of term sheets then this is probably equally useless. And no, this is not based on any academic or scientific study. It's based on my own experience and, more importantly, that of a few other experts like Dave Kimelberg (Softbank's GC).
In my view there are 12 important terms on a typical Series A / B term sheet. Yes there are other terms and yes sometimes they are important, but if you go with the thesis of keep it simple, then 12 is the magic number. In terms of rating, the rich/king differentiation is important as different people are after different things so depending upon your motivation you may be inclined to pay more attention to one column than the other. So without further adieu, below is a table showing them as well as the relative importance:
[Sadly I couldn't get the table to format here. You can see the matrix on my blog at http://www.altgate.com/]
Here a 10 means it is really important to get as favorable a result as possible on this term, a 1 means it is not so important and a "-" means it doesn't apply (i.e. a zero). The cool thing about having something like this is you can use it as a tool to compare term sheets (provided you can determine how favorable or unfavorable each individual term is...more on that below).
The next part of this post is to provide a range of typical results for each term which will give you a means to rank each term in each term sheet with a "1,3 or 5" where 1 is "unfavorable", 3 is "fair" and 5 is "favorable." If you aren't already familiar with the terms in a term sheet, you should check out the model term sheet (basically a template) put together by the National Venture Capital Association. They have other model agreements too, but you will see with the term sheet that they include various options, some discussed here. Below is a scale for each of the 12 key terms across the two dimensions:PRIVATE: Members Only (7217 Characters)
Posted by Entrepreneer on 2008-04-14
I had the opportunity to sit in on someone else's pitch to a VC recently, and for the first time got a chance to see a pitch meeting from the investor's point of view. It was illuminating. I turned back to the various pitches I had made in the past, and saw them in a new light. When you're embedded in, and heavily personally devoted to an idea for a long time, it's hard to have any perspective. When you're hearing an idea for the first time, you'll probably see some gaping holes immediately. The entrepreneurs who are trying at the idea are willfully blind to these holes, having spent months (or years) justifying their hopes. There is one hole that I perceive is routinely there, and you'd better be ready to answer this question: "Why you""
As an engineer, I have been routinely approached by people with business ideas, who need an engineering lead to get the idea off the ground. They usually also need a designer (product and visual), and maybe a sales person. Which causes me to ask them, "I have my own ideas, and I can go build them. What the hell do I need you for"" In the end, if you cannot write code, write a detailed product spec, draw graphics, draw up contracts, or raise money, what good are you" We could come up with 5 decent ideas a day, so even at a good consulting rate, that's what, $240 per idea" For something to be investable, you need both the idea and the capacity to execute. If you're a dreamer with an idea and nothing built, please don't talk to VCs. You're wasting everyone's time. Go find an angel investor who will help you put together a demonstration of the idea.
Beyond that, even if you bring a team that's capable of executing, you still face a real problem. You aren't the only person working on this idea. Trust me, if you are the only one working on it, the idea is too early. So if there are other people working on it, why are you likely to be one of the winners" Do you have plenty of contacts in the industry" Do you have a deep personal understanding of the problem space" If you're a male 20-something building a Mom's portal, you gotta ask yourself what the hell you're doing. Remember, for every idea a VC invests in, they probably turned down 99 others. What will make you stand out" How will you answer when they ask, "why you""PRIVATE: Members Only
Posted by MedTech Expert on 2008-03-02
Tags: Preparation Vision
Silicon Valley is where most everyone's goal is to be wildly successful in changing the world - creating a runaway success and being rewarded with a big payday. All know the odds, and the daily struggle of insatiable demands for the next big thing with the very least investment, and industry-wide contempt for those who have failed. Despite this, all are driven to grasp for the shiny brass ring that's always, though sometimes barely, out of reach. It is an environment of soaring hopes, crashing defeats, and maddening near-misses.
True out-of-box successes provide people in the business (both entrepreneurs and VCs) with a wonderfully rich smorgasbord of opportunities for bitterness, resentment, despair, and self-loathing. These successes go against the grain and were, early in their development cycle, disdained as not having the right stuff. They represent lost investment opportunities to those who passed (believing they were smarter than those who invested) and those who viewed them as non-threatening competitive businesses (believing a different view of the world). The same old dramas of love, fear, loss, anger, desire, ambition and envy are played out here.
In this business, there is no defined path for navigating the entrepreneurial career. Triumph and failure follow one another- in fact, feed one another - in a maddening erratic way. This is a notoriously fickle industry, where you can earn vast sums for a few years, then face a sudden and inexplicable loss of marketability, followed by a severe cash drought. Wondering whether to continue struggling against repeated rejections, chronic frustration, and financial hardship on the off chance of "making it," or else giving up and getting into something, anything more dependable - is the name of the game here.
Despite this, entrepreneurs never lose their yearning to change the world and be entrepreneurs. While they love the perceived freedom, they live in the constant state of self-consciousness (they may deny it), feeling their entire worth as a human being is being judged by people who are risk averse, lack vision, and not technically one's peers.
Fortunately for society, these talented people, once having tasted the wild nectar of forging a new path and trying to create a new world, find it almost impossible to quit the field, even when the odds are stacked against them.PRIVATE: Members Only
Posted by ld on 2008-02-22
I have become a little disenchanted by the comments I see on The Funded about VC's. Don't get me wrong, I think this site is a great idea and facilitates a valuable function in the market that did not exist prior. However, it needs to be more than a place to complain that you essentially were turned down by a VC.PRIVATE: Members Only (1039 Characters)
Posted by Anonymous on 2008-01-17
They say that VCs are "pattern matchers". Now after a couple of identical (bad) experiences during our current fund raising round, I think I see a pattern worth sharing.
Here's the story line:
-- Junior partner at mid-tier firm hears about deal, gets really excited, makes boastish claims about the speed at which they can get a deal done and makes strong enough claims about valuation that it's hard to say no to spending time
-- Junior partner researches the hell out of the deal, sucks down a lot of company time with questions, models, reference calls, etc.
-- Full partner meeting. Junior partner hasn't done his homework with the partnership to sell the deal. Senior partners start raising a series of questions and objections.
-- Junior partner, back on his heels, scrambles around to respond to all of the new objections, while assuring that the deal will still get done and a term sheet is just days away. Sucks down a bunch more company time. Objections are mostly silly and easy to overcome, and should have been handled before the full partner meeting.
-- As each objection is overcome, a new one appears from the big bag of silly objections. Objection overcome yet again.
-- Once this game has run its course, one final objection appears, this time, the objection that can not be overcome: "We just don't feel good about
As I reflect on these these two experiences, it is pretty clear what happened. The deal was dead by the time we walked out of the full partnership meeting. The junior partner had not properly sold the deal, and they didn't have the juice with their senior colleagues to get to the finish line.
But of course, the junior partner can't admit to any of this. It has to be the company's *fault* that the deal came off the tracks. So instead of a simple, "No, we're not going to be able to go forward," they reach into that good ol' big bag of silly objections. The management team is on their game, and so the objections are easily overcome.
After a few cycles of this, the junior partner realizes that he can't save face on the back of a factual objection, so he ultimately retreats into the vague ad hominem objection that can not be overcome.
So beware. Junior partner" Questioning his juice" All powerful senior partner stomping on the deal" Think twice before you spend any more time on a process to get to that elusive term sheet that is still coming. If they won't give you a simple "no", give THEM a simple "no".PRIVATE: Members Only
Posted by MedTech Expert on 2008-01-07
Tags: Operations Hiring
Those that have a "growth" mind-set and keep learning, even if it means failing at first, provide the fuel for building a successful company. Those who have a "fixed" mind-set and avoid any prospect of failure will insure failure.
Hiring for talent may provide you with bright employees but may also lead to employees who do not take chances and cannot accept constructive criticism or setbacks.
Ask job applicants (and this applies to board members and advisors) how they feel about being involved with something that has a high probability of failure. While you may not believe this and you certainly are not selling this, answers to this question will speak volumes about the person in question and whether or not they are a fit.
Hire for both talent and mind-set.PRIVATE: Members Only
Posted by MedTech Expert on 2008-01-04
Tags: Venture Business Termination
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.PRIVATE: Members Only
Posted by Anonymous on 2007-05-14
Tags: Pitching Intermediaries
If you use an agent, you will be paying a fee for service. Do your upfront work to avoid being disappointed later on...PRIVATE: Members Only (1314 Characters)
Posted by The Founding Member on 2007-05-03
Tags: Pitching Presentation
Our favorite VC blogger, David Stern of Clearstone Venture Partners, contributed four hardball questions to ask funds that you are pitching on his blog. Since VC's are strictly not allowed to post at TheFunded, we have re-purposed the advice, which is very insightful stuff. Don't forget to ask these questions in your next meeting. Enjoy!
Posted by nkannan on 2009-05-13
Tags: Venture Business CEO
I saw a blog post by Georges van Hoegaerden titled, "Idiot CEOs." Here is the link:
A very amusing post that makes us CEOs think about financing alternatives to VCs.
Your thoughts?PRIVATE: Members Only
Posted by Anonymous on 2009-01-25
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
Posted by Mr. Smith on 2008-11-03
Traction is the buzzword of fundraising these days. It is required by many, and understood by few. Here is an attempt at defining traction for all parties in the fundraising cycle.
1. The Idea: How strong is the fundamental idea and underlying revenue model" Does it make complete sense, and is it backed up by published industry data"
2. The Team: Have you assembled a group of domain experts that can execute the idea and the model" How seasoned are the experts that you have assembled"
3. The Prototype: Do you have a prototype of your offering that is compelling to the target audience" How polished is the prototype"
4. The Launch: What is the reaction among trade journals and other media outlets regarding your product launch" Is it well covered and well regarded"
5. The Adoption: How many target customers have adopted your offering and is the growth rate substantial" Are you experiencing a high level of customer satisfaction or a concerning level of churn"
6: The Revenue: Have you started to derive revenue from your offering and is that revenue either ahead or behind or model assumptions" What variables have changed from your assumptions"
7. The Profitability: How profitable or near profitable is your model once in operation, and are there untapped revenue opportunities for future revenue growth"
8. The IPO: How long until you can take your company public, assuming two years of fast growth, audited financials, and profitability or near profitability"
Most venture capitalists, for better or for worse, tend to invest in phases 4 and 5. VCs like the potential upside without the too much details from phase 6, though many investments occur at the start of phase 6, before any details can be conclusively determined. Any other thoughts"PRIVATE: Members Only
Posted by Mr. Smith on 2008-03-06
You have been slaving away at a fundraise, and now you have an introduction to a top fund. Pow! You pop open Outlook and copy and paste your three page introduction email meets business plan synopsis. Guess what" Bad idea. Almost every entrepreneur, including myself, has overdone the initial introduction email. Your mission is to sell them on the opportunity, not to close a deal with the Death Star of pitch emails. Let's walk through the anatomy of a good introductory email.
Starting at the top, the email title should be clear, including key data points on stage, industry, and need. For example: "Early Stage Biotech Opportunity" or "Follow-on Investor Needed for Cleantech Expansion Round." If you have a well-known company, then say "TechCrunch Looking for small Series A."
Blanket spam-pitches are insulting, so the email itself should open with some personal context based on doing your homework. For example: "I see you are on the Board of VentureBeat, and I would like you to look at my TechCrunch opportunity" or "Roger has said that you are the right person for us to speak with about cleantech."
Next is where every entrepreneur makes a series of classic mistakes. A compilation of overwhelming market data, jargon, and bullet points normally follows the impersonal introduction, accompanied by a slew of useless attachments, login information, etc. Do you think that VCs actually read all of this stuff" Your goal here is to say as little as possible and get this person on the phone.
Your best case scenario is to boil down personal background, market need, market size, and funding requirements into an easy to read paragraph (even a sentence, if possible). For example, "After selling my last company Google, I patented a process to generate electricity from highways. An initial field study demonstrated that the 405 through LA can supply electricity to 400,000 homes, generating $40 MM in revenues. We are looking to raise a $5 MM Series A to deploy a larger technology trial to supply electricity for 10,000 homes before we enter full-scale production across the United States."
Close your email with a couple of opportunities to speak, and be specific. For example, "We are planning to start meeting with investors next week, and I have availabilities on Tuesday and Thursday afternoon. I will also be down by your offices on Friday. You can reach me on my cell to set something up." Never delegate scheduling to your assistant, especially when fundraising.
Do any other Members have some good tips for an introductory email to post below"PRIVATE: Members Only
Posted by Anonymous on 2008-02-05
Tags: Preparation Targets
Your current investors will often have different motives with a new financing round that you do, so be extremely careful. Maybe they want to get more equity at a good price. Maybe they have internal fund pressure to show portfolio growth with a higher valuation. Maybe they want to gain some more investor control to force a liquidity event. Many times, old investors will pressure a company to raise new capital, and almost always the motives of existing investors in a fundraise is not what they appear to be.
The best advice is to take the time to engage in a proper fundraising process, even if you have "insider interest." Most of all, do not accept an internal offer without at least trying to secure one or two additional external offers. Your existing investors can be counted on to help make some introductions to other funds, and you should encourage them to participate at their pro-rata allocation.
It's your job to get the best possible terms, and there is no question that you are better off with multiple interested parties bidding up the price, even when you are busy growing the business.PRIVATE: Members Only
Posted by Utahentrepreneur on 2008-01-18
Tags: Funding Sources Location
Unless you're an entrepreneur in the major tech markets, you are essentially raising money "in the middle of nowhere" (in the minds of the investors in the major tech markets!) Frequently these smaller markets may have a small cadre of venture type investors (sophisticated angels or VC firms). For the unwary entrepreneur, pitching in local markets first can actually backfire! Members, read onPRIVATE: Members Only (2214 Characters)
Posted by Anonymous on 2007-10-06
Tags: Preparation Fund Diligence
Funds at venture firms are often designed with a narrow focus for both the returns and types of deals they need. On top of that, there is the usual hot areas of interest. Find out what is most interesting to the decision makers and find out not only what they have done by looking at their portfolio, find out what's in the works. Learn what are the reasons for the interest in the active deals. Just ask, they won't tell you the company name, but they'll tell you what is interesting to them in broad sweeps. That will help you see if you fit and also help you revise your pitch to better fit the mold. It also helps you understand what other firms will find interesting. It's copycat all over the place out there. Oh, and if you didn't notice, look for the next thing in clean tech, not in enterprise software or web2.0. Go where the interest is high and the deal competiton is low. Find the firms that get that and don't agree to a meeting until you have qualified them early. Build a target list of the best say 10 firms and figure out how to get introduced to a partner. Narrow focus your efforts and get in there. You should also split your list into two batches, maybe 5-10 in each one. This way if your model bombs in the first run, you still have a chance to clean it up and go again without having polluting your chances by broadcasting that you still haven't gotten funded. Go small and focused and target the exceptional firms and then get in to the key partners or not at all. The more you know about who is interested in your category and type of deal, the more you will know how to leverage one firm against another as you start to get traction. Get one of them to give you a term sheet and the rest will then jump in line to catch up. Then slow down and make careful decisions and your company success may well depend on what you do at that point.PRIVATE: Members Only