17th level Hacker

Art of the Start 7

Raising Venture capital - Bill

Q1 - is your idea fundable? Not everything is. You need a business that has potential for sustainable rapid growth, get to significant size and scale (billion dollar, gets easier as you grow), ongoing disproportionate profitability.

Q2 - What is the best way to raise capital? Start smart, get details right at the start. Tell a good story, internalize. Make the numbers add up. Find the right investors. Build credibility.

Start smart - put together a simple clean corporate structure (incorporate and founders stock, don’t start as an S Corp and then try to evolve later on) You get into trouble if you start promising percentages. And you NEED to setup buyback agreements. When you bring in employees and consultants do it right, with documentation, and that you own intellectual property. Have standard agreements. When you get seed investments and loans make sure you have the proper documents and you’ve done it with the right structure. Assume everything you’re doing is going to be public, pay attention to governance. Get the right attorney.

Tell a good story.Know how to articulate the fundamentals of your business. Every investor keeps a mental scorecard: the team, problem/opportunity, tech, sustainable advantage, business model, partnership/leverage. Saying something like “well, you have to ask my CTO” is a baf thing. Listen to what VCs seem to be concerned about and pitch to those issues.

Make the numbers add up. If they’re trusting you with millions of dollars, they want you to know how the money is going to be made. Long term financial projections (even if they’re not sure bets, you have to tell a story using numbers of your vision of what the future will be.) Just make sure that your projections would look like compared to past great companies. Most people show numbers that put their company better performing than the greatest companies in history. Near term operating plan, capital requirements, capitalization structure over multiple rounds, levers of profitability, what are the key metrics, how are you monitoring and measuring them?

The right investor. Generate momentum, develop the technology model, start building the team, “here is what we’ve done with nothing, imagine what we could do with your investment”. Pick the right firms, and the right partners within those firms. Target your venture contacts, but then drill down another level and make sure that the people on that list are the right target.. And if necessary go back to your network and see if you can get an introduction to the right partner at firms you have touch points for. Nurture a syndicate of investors, find a lead who would draft a term sheet. Be honest and build trust, get a lead investor that will help you develop the syndicate. Manage the selling process, finding venture is just a different kind of sale. Be agressive.

Build credibility. Customers, having customers is a great. Partners. Investors. Advisors and board members. Industry experts. Milestones. Don’t lie! Top 10 lies from people looking for funding (Our projections are conservative, our target market is 56 billion, we have a world class team (just say what the strenghts are), our average sales cycle is 90 days, we have no direct competition, no one else can do what we do (say why your advantage is sustainable), all we need is 2 percent of the market, we’ll be cash flow positive in 12 months, our contract with Nokia will be signed next week, I’ll be happy to turn over the reigns to a new CEO).