What 25 Years and $200 Million in Financing Taught Me
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I like to think of myself as a young man, but I guess I have a full head of grey hair now. I’ve run three different tech startups, a public company for seven years, raised a lot of money and bought and sold a number of companies. I’ve managed thousands of people and hired hundreds. I’ve even fired a few. So when I was asked this question, “What did 25 years and $200 million in financing teach you?” I decided to focus on a very important aspect, the context of raising money for startups companies.
There is more than one way to skin a cat.
It is very easy to fall into the trap that the way to raise money for a startup company is to do a seed round with angel investors followed by an institutional round from venture capitalists that reside on San Hill Road in the Silicon Valley. This still is the traditional way that most startups will get funded and it is much more straightforward if your company is located in the San Francisco Bay Area.
However, there is a plethora of new ways to raise money for startups. You can go on Shark Tank. Just kidding, or maybe I’m serious. Tons of technology incubators are springing-up around the country and now around the globe. You have syndicated Angel financing rounds through the likes of Angel’s List. You have the emergence of equity crowdfunding. You have Reg A+ opportunities to raise even more private financing in syndicated financing rounds.
However, I still think the best way to fund your company is to bootstrap as long as you can with your own money. Try to fund it out of revenue. Use government grants. Take non-recurring engineering dollars from strategic partners and customers. Raise money from strategic partners. Make as much progress as you can for as long as you can before considering outside financing from Angels that you don’t know or from venture capitalists.
Don’t innovate a new business plan format.
Investors are used to getting information in a certain way. I suggest giving it to them the way they are used to getting it. There is no shame in leaving the innovation for your product versus trying to innovate a new business plan concept. Use big picture stories to describe your business in a language that your audience will understand. If possible, create a visceral reaction. Focus most of the time talking about the business and only about 20 percent of the time on your product or your solution.
Related: Getting Started With Angel Investing
Every no is one step closer to a yes.
You will be rejected. Don’t take it personally. Angel investors and venture capitalists are programmed to say no. I like to think they mean, “no, not right now.” Don’t get your feelings hurt or your feathers ruffled. Try to get feedback about why they are saying no. If you believe in your idea and it is actually a good business idea, you can get it funded. In my experience, good deals get funded. Period. Be creative. Be passionate. Be persistent. If your deal is not getting funded and you are working hard, take a look at yourself and your business versus blaming the venture capital industry for a lack of vision.
Raise more money than you think you need.
Once you make the decision to raise outside capital, raise a sufficient amount of money to get you to your next major milestone, even if you incur a slip in your schedule. Having an extra six-month of runway can make a world of difference in the life of your company and your personal health.
Use the scarcity model.
Not to be mean, but venture capitalists are like lemmings. They follow each other. This is part of a reflection of the make-up of limited partners and partially due to the collegial nature of how the venture capital industry has evolved.
Like any sales, if you can create scarcity for your deal, you will garner more interest. You can only use this once, so don’t fake it. Find an anchor tenant for your deal, and use that as a catalyst to drive a financing to completion. Even if your first term sheet is not the final one that you go with.
Give up as little control possible.
This is a little tricky. Venture capitalists are very sophisticated. Make sure you have a strong corporate counsel for your firm, and that you understand the latest trends in deal terms. Way to many entrepreneurs get caught-up in valuation and don’t spend enough time thinking through deal terms, including employment agreements for the founders. Spend the appropriate amount of time and effort on all aspects of the deal. You won’t regret it later.
Always promote your startup.
As a CEO, you are the head cheerleader and motivator for your company. You need to always be selling. You are selling to your board, your team, your employees, your investors, your customers, your strategic partners and other key company stakeholders. If you are at a cocktail party, always be ready to give your elevator pitch, and give it with enthusiasm. Even when you are not officially in fund raising mode, you should always be looking over the horizon for your next financing. Build relationships. It will pay off when you are ready to raise your next round.