Posted by Anonymous on 2011-06-05
Tags: Early Stage
Most folks look at the funding meeting as having a “yes/no” outcome. It is much more realistic to recognize that there are many outcomes:
Funder Doesn’t Get It/ Like It:
1) Don’t get it - go away
2) Don't get it - but I'll learn more
Funder Gets It:
1) Get It, but not are my area of investment – will contact Mr./Mrs. XYZ on your behalf and suggest that they meet with you
2) Get It – I’ll give you some $$ - and I’ll let you run the company until you screw up
3) Get It – I’ll give you some $$ - and I’ll let you run the company until Point XYZ – at which time we’ll bring in a new CEO
4) Get It – I’ll give you some $$ - but I want my EIR to run it from Day One
5) Get It – I won’t give you $$ - but I like what you are doing so much I’ll
a. Tell one of my portfolio companies to do what you are doing
b. I’ll build it myself
Posted by Anonymous on 2009-07-02
Entrepreneurs always talk about the pitch. A Mike Tyson knock out pitch can get you another meeting, but what about after the pitch? How about before? Hell, how about from the moment you step off your front porch to the second you return?. A 24/7 game face will drive you to the promise lands 3x faster than simply wielding the magic when you've got the mic. Here are 3 tips I've found to work wonders before, during, and after the pitch.
1. Smooth entry. VC's and angel's alike will judge you from the second the tip of your polished shoes crosses that door jam. Chin up, calm stride, and eye contact from the moment you have a line of sight. If you've done your research you'll know exactly what their hobbies are, portfolio consists of, and hopefully a mutual acquaintance you can reference off the bat. Don't hold it for longer than a minute. They want to see that your personable, but professionalism and punctuality are key. Make a point to note that you have another pitch later that day that starts 2.5 hours from now. They need to know that you're sought after, busy, and they aren't the only duck in the pond.
2. Practice your pitch in front of a mirror starting with the entry. Everyone looks foolish when they're putzing with the projector, so practice the pitch from the top with a computer and projector handy. It detracts from the great introduction you just made, and allows them to push their pencils and think about how badly they want to get home to watch Jack Bauer in 24. From the moment you've loaded the deck you should be on fire. Eyes lit, smile wide, and rotating eye contact the entire show. VC's and angels invest in entrepreneurs, not companies. They need to feel your fire, align with your mission, and ultimately know that you are the captain that can navigate their $ to $$$$$. Vary your tonality, conduct the tempo of the pitch, and ultimately you will command their attention and peak their interest. Mr. Smith has a great post on the 5 rules of pitching. I highly recommend it.
3. Do not, and I repeat, DO NOT leave right after questions. Get your business cards into their hands, have a quick chat, and get that 2nd meeting. How many VC's or angels can acutely assess how bad ass your opportunity is in one 10-20 minute pitch? Very few. If you didn't give them enough kick in the pitch, that's your fault and they'll simply want you out the door as quickly as possible. But if you did your job in the pitch, they've either got a "yes" in their head and you'll be invited back anyhow, or they have a "well we've got a ton of other deals to look at. This one's good, but I need more." More often than not it's the second one, and that's a result of the massive entrepreneurial talent here in the Valley.
A 24/7 Game Face can make the difference between getting the 2nd meeting and being shown the door. If you can't stand behind your vision with pride, confidence, and flare, no one else will, even if they'd like to.PRIVATE: Members Only
Posted by Anonymous on 2009-06-02
Tags: Negotiation Intermediaries
One of my board directors proposed to help us fundraise using his influence in the VC community. He suggested a 3% finder's fee with a few stock options on top for funds raised through his introduction. I understand the typical finder's fee for investment bankers is in the range of 6% to 7%. Is my board director's proposal reasonable?PRIVATE: Members Only
Posted by Rogue on 2009-05-14
Tags: Venture Business Busines Plan
The New York Times ran an article on the role of the business plan in venture funding. Seems to confirm the general wisdom, but interesting anyway.
Posted by Doe on 2009-03-08
Fellow entrepreneurs, most VCs are unable to complete capital calls and, therefore, are unable to make new investments. This includes everyone from name brand funds to small funds, and it does not matter if they recently closed a new fund or not. If you are pitching a venture fund, there are two critical pieces of information that you need to know before wasting time with meetings, diligence, and faux terms:
- First, has the fund made an investment in a company that was not already in the portfolio in 2009, and, if so, which company?
- Second, has the fund completed a successful capital call in 2009?
Is the answer is 'no' to either of these questions or the fund is uncomfortable discussing these matters, then don't bother pitching them and move on. Why? Between the dismal exit history, defecting LPs, worthless secondary markets, and massive position devaluations, venture firms are facing an apocalypse right now. The whole concept of 'venture capital' as an asset class is being re-evaluated by accountants worldwide, and the outcome of that work does not look good for venture capitalists.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 fnazeeri on 2008-12-10
More here.PRIVATE: Members Only (1627 Characters)
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 Anonymous on 2008-10-10
Tags: Preparation Late Stage
The declining economy and difficult IPO markets have made it increasingly hard for venture funds to price late stage equity. As a result, less and less late stage deals are getting done.
First, existing investors in late stage companies can not easily lead an internal round without a new investor pricing the round to satisfy the appearance of objectivity among their own investors, the limited partners.
Second, new investors have difficulty pricing later stage deals because evaluating the range exit opportunities is impossible right now. There have been no venture funded IPOs in the last quarter, and traditional public acquirers have seen a dramatic decrease in equity values and an inability to raise debt. Without public comparables or reference M&A deals, pricing equity is a guessing game.
On the other hand, early stage investments are largely based on pursuing market opportunities and owning certain percentages of preferred stock. A strong management team with a good market opportunity can raise capital without problem in today's market.
Your best shot as a late stage company is to conserve capital through cost savings and find a "friendly" to price your deal. Once a price is set, there is plenty of money for investment. The price is the hardest part to get. Any suggestions on some ways to land a "friendly""PRIVATE: Members Only
Posted by Mr. Smith on 2008-10-08
Tags: Venture Business Crisis
Posted by Anonymous on 2008-09-07
By diligently negotiating the cap on investor legal fees, you will dramatically accelerate both the diligence and the closing timeline. Most investors will easily agree to a cap of $25,000 to $50,000, and you can be sure that all of this money (and time) get chewed through on both sides. Factoring in your own legal costs, you could be looking at a $50,000 to $100,000 deal that takes between two and four months to close.
However, negotiate hard when you get a term sheet to cap the investor legal expenses at $10,000. With fees at this level, all of the work needs to go into drafting documents versus negotiating detailed terms. The lawyers themselves will feel pressure to close faster, rather than work endlessly to reach the agreed cap level. All in all, you will be looking at a cleaner deal that closes in two weeks to one month.PRIVATE: Members Only
Posted by 4Technology on 2008-08-31
Itâ€™s pretty rare when an investor gives you a second look, so weâ€™re calling our venture debt round with Velocity a real success in todayâ€™s market. It certainly points out there are very specific conditions under which lenders will embrace your technology and help drive it forward. Once you figure those out, the path to funding gets much clearer.
Relationships count. What began as a project to find a venture debt partner for our company turned into an equity round due to often valuable partnerships; and opened the door for a subsequent venture debt round. Having an existing intercreditor agreement with senior lenders also makes a big difference. Again, relationships matter.
Believe it. Jan, JP and Joe at Velocity Financial clealy made the difference. From our first call through extensive due diligence and all the legal docs, it was their belief in our technology that made them feel like part of the team. From the senior due diligence team to the guy getting the paperwork that last mile, these guys make it happen.PRIVATE: Members Only
Posted by Anonymous on 2008-08-02
Tags: Preparation Strategy Effort
As a CEO I make sure I periodically look back at my 'fuck ups' and learn from them. Theres been a few along the way, some small, a couple a little bigger, so I wanted to share one here.
Raising money took way longer than I expected. The search didn't take too long.. the deal completion tooks months and put enormous strain on our resources. Both financially as we bridged our way to funds and on our time and focus. Raising money is a major distraction from running your day to day business. I estimated 2 months to complete the deal. Its taken almost 5 and stretched us thin as well as pulled my attention away from what I am here for - building the business. I'm lucky, we raised money.. but now I get 80+ hour weeks making up lost ground in business development as well as the backlash of robbing Peter to pay Paul the past couple months.
Lesson: Assume 6 - 9 months to search, obtain and close funding and make sure you have both the financial and human resources to run and grow your business during the deal cycle.PRIVATE: Members Only
Posted by Mr. Smith on 2008-07-27
A lot of new entrepreneurs start pitching venture capitalists or angel groups and rejected over and over again, myself included. Entrepreneurs hear the same criticisms across dozens of meetings, which is discouraging. In some cases, you may even have second thoughts about your business, but, before you reconsider your model, consider what is going on.
First, investors use the same critical reasoning for different businesses in related industries as a way of saying "no" politely. For example, with online advertising businesses, your site is not sticky enough. With subscription business, conversion will be too low.
Second, investors are not operational or modeling experts, so their opinion on your business is worth as much as you pay for it: $0. They are experts at convincing entrepreneurs to give them a large portion of a company and the control for the least amount of money.
Third, investors say "no" many times per day, so they are very good at doing it without revealing the real reasoning. Reasoning rarely has anything to do with a model, but it usually has to do with (a) partner personality matches, (b) firm investment focus, (c) other investments by the firm, (d) sector heat, and (e) control.
In general, a new entrepreneur pitching a business should expect to hear "no" between 30 and 60 times before receiving investment. Each "no" meeting can be an opportunity to get closer to a "yes" by learning which aspects of your pitch generate the confusion, resistance, and questions. With each additional meeting, your pitch should get shorter and better. Don't give up. Be Strong in the face of "Trained Skeptics."PRIVATE: Members Only
Posted by chimala on 2008-06-18
Tags: Operations Founders Equity
You probably heard of this concept - founders of VC funded startups contribute some of their stock to a 'fund' and thereby share the risk/reward. This kinda works like an insurance in case your startup goes to the dead pool.
The question is, as a startup entrepreneur, would you be in favor of such a proposal"PRIVATE: Members Only
Posted by msjane on 2008-05-13
Tags: Negotiation Disclosure
Many posts have brought up the risk involved in disclosure of ideas to possible investors. It's implied in most of these posts that the writer feels they have a property of some kind that is unique and vulnerable to duplication if news of its existence gets out.
A tempering argument against uniqueness is at
Mal Gladwell cites a sobering argument against eponymy, i.e., naming scientific advances after one person. It seems as if great ideas, are in fact, 10 cents for twelve.
Even though Gladwell argues that his -- and others'-- analysis won't hold up in the realm of "art" I can say that in personal experience, commonality still turns up.
Some time ago, a hotshot literary agent discovered my "notes" on an otherwise OK screenplay had enabled them to close a million dollar "spec" sale. He thought I was Rumplestiltskin and started shoveling (1500+) circulating scripts at me.
Alas, only 10 were worth any work at all. One writer alone was willing to go back and do some more work. What did turn up though, were clusters of themes. Cupid makes Venus a bet about making two unlikely mortals fall in love. A homeless person becomes wealthy. Etc. There were several groups. None of the writers knew each other.
So, protecting one's property is critical -- up to a point. Odds are, others are at work on something very, very similar.
Greed minus fear = deal.
Be prudent but get funded.
Posted by Anonymous on 2008-03-08
I raised $40m from top tier VCs 6 years ago and am now raising money again for another startup. While initially rusty, I quickly remembered how much of a game this is. Recently I spoke with 3 first time CEO who are raising money for the first time. Here are my 2 cents on a few items. I'm interested in others thoughts.
1. DO NOT leave or email your presentation. you are only educating them on your category (not your job) and informing your competitors. As CEO of a VC funded firm, I always was emailed the presentation of any competitor. IF they insist on seeing presentation before mtg, then they are not interested. All the top guys know this and thus take notes during the meeting. IF they are not taking notes during your meeting and still ask for prez, then they are not interested. DO send them some material to spark interest - founding team resume, paragraph overview, perhaps article about customer pain.
2. First 10 minutes are most critical. Yes, its very hard to get meeting, but once you have meeting, you need to QUALIFY and CONNECT with the partner in the first 10 minutes. Qualify by finding out how much they know about category and space. Connect with him or her personally (without .ppt on). Resist natural inclination to firehouse .ppt since you only now have 45 minutes. The ONLY purpose of the first meeting is to establish interest to have a follow on meeting. If they don't see enough promise in your team and market opportunity, then they will not fund deal and you need to move on.
3. Beware the "Head fake" to learn. "Yes, yes, this is VERY exciting. We want to do this deal." You get excited, send them your research and customer contacts, and they now have learned everything you learned on your dime. Deal excitement then dies. Instead, given them 1-2 very specific items of homework (perhaps contacts for you on due diligence, MAYBE 1 customer contact late in the process). Be constantly giving them homework and watch their _actions_ and not words.
4. Do not serialize pitches. Schedule as much presentations during same 2-3 weeks to generate excitement and interested. The #1 thing to get these guys to move or to pass is another firm putting down term sheet down or seriously looking at deal.
5. Don't forget - 90% will never say no. Pitch, given them homework, then move on. If they are interested, they will find you. It's in their financial best interest to keep as many deals open as possible (yes, this is incredibly frustrating for CEOs but it's the way it is).
6. Keep raising money until money is WIRED. Plenty of deals going south (yes even at top tier firms) before money is wired. Smile, but only believe money being wired.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 MedTech Expert on 2008-01-01
Tags: Preparation Hedge Funds
1. Generally lack hands-on business building know-how. Provide little if any problem solving capability.
2. Are use to getting into and out of stocks (public) quickly and do not like being in the "roach hotel" when things get tough. Will be hot and cold on investing in future rounds unless they stand to lose alot.
3. They travel in different circles so their networks are generally useless for start-ups.
4. Provide little if any operating advice - recruiting, compensation plans, insurances, MIS, etc. - as they have no resources or experience to draw from.
5. Are generally overcommitted and do not provide the commitment as other board members.
6. Some parade as venture investors but as part of a larger private equity fund, I can assure you they are not.
Posted by RichieBlueEyes on 2007-12-16
This post isn't meant so much to learn about investors but is key to starting a company and attempting to not destroy your current relationships and your company in the process. Yes, I'm aware I'm posting this at 12:37AM on a Saturday night (I suppose I have no life so my advice here take as you wish :) ... well, in my defense my gf is sleeping beside me.
But most of us crazy entrepreneurs, myself included tend to get tunnel vision, tune out the world and forget about family and friends and hyper focus while we are in the honeymoon period with our idea (according to my GF, i'm in a relationship with my macbook more than with her - to be honest I'm not sure why she stuck by me during my last venture but that's a story for a beer, not here). So while in the honeymoon period, try to take 15 minutes a day out and kiss your gf, your wife, your mother, your dog, call a friend, LEAVE YOUR LAPTOP and go for a walk and attempt to have a semblance of a life. I'm still struggling with this issue myself but if you're a first time entrepreneur especially, make sure you have an outlet, a hobby, a hookup buddy, anything to leave your computer alone. No, a girl across the country on AIM doesn't count nor does poking random girls on facebook.
One great way to kill a company (and i've done this) is by being so focused on it, you can't see the writing on the walls where there are issues and they blow up when they didn't have too. Too much work hurts more than helps. Life is about balance.
With that said, i think all entrepreneurs (including myself) need shrinks. Now, I've been saying this for a while but I haven't gone to see one so I suppose it's far harder to do than suggest. I do need one, ya know, the frequent highs/low, tunnel vision, ADHD etc...
Maybe attached to term sheets should come a prescription for Ritalin and a weekly appointment with a shrink" (just kidding...or am i" :)
RichiePRIVATE: Members Only
Posted by Anonymous on 2007-12-05
I feel like I have been suckered into starting LLC's by law firms over and over again, and here is what happens every time: (1) it costs twice as much to get all of the papers done, (2) we start growing and need to layer in complex partnership concepts for the equivalent of employee options, (3) we have to convert to a C Corporation to take any real external financing, and (4) the conversion costs twice as much as you expect since you need to transform a convoluted partnership structure into an equity structure.
Using an LLC structure for a fast growing start-up seems like a trick play to generate ten or twenty times the legal fees. My next company is going to be a corporation, starting with an S corp for preferential tax treatment and migrating to a C corp when the business starts to scale. Any other thoughts on this strategy are welcomed in the feedback.PRIVATE: Members Only
Posted by Anonymous on 2007-09-21
In all of my venture rounds, my company has had to bear relatively large closing costs for all of the funds involved. I do appreciate the reasoning, but I have seen it eat up 5% of the deal value on day one, especially if middle men are involved... Are other companies also bearing excessive venture closing costs" What are some thoughts on this"PRIVATE: Members Only
Posted by Maddog on 2007-09-12
Tags: Negotiation Participation
Commonly included in term-sheets and sometimes only revealed in longer-form documentation...but effectivley way for Series-A to get their cake and eat it too, by essentially cashing out...and getting paid again before the pie is carved up for founders, management etc....definitely worth learning about.PRIVATE: Members Only
Posted by HBRuby on 2007-08-30
Posted by Anonymous on 2007-04-05
Tags: Operations Board Meetings
So, I have wavered between "War and Peace" and the one page agenda for Board meetings. I stand somewhere in the middle. In my humble opinion, less is more, and here is what I recommend: (1) Agenda Page, (2) Minutes, (3) Dashboard, (4) Budget vs Actual, and (5) Business Discussion Points. Throw a cap table and financial back-up in a couple appendices (and make sure to update your cumulative dividends). Members, read on...PRIVATE: Members Only (569 Characters)