June 15, 2012
At its best, raising funding can be an exciting, educational, validating process during which you gain a group of mentors and partners literally invested in the success of your idea.
At its worst, raising funding can be an overwhelming, embarrassing, tedious, stressful, long-and-drawn-out process that leaves you uneasy about the terms of your deal.
The difference between the two often boils down to doing your homework. So here’s your homework: 11 meaty posts that outline the whole process and tell you what to do, what not to do, and how to deal with things like participating preferred stock and no-shop clauses. Most of these posts are written by devilish angel investor Glen Hellman, who has an early-stage angel firm in Washington, DC, and a biting wit.
Tips and How-To’s
- 15 Essential Startup Seed Fundraising Skillzzz: Right before he started Uber, Travis Kalanick composed this gem of a (long) post on Tech Cocktail. It breaks down the “ultra-warrior-l33t-skillz” for raising seed funding. I’m not quite geeky enough to understand that, but if you are, click on over to hear a breakdown of the 15 trepidacious steps from networking with angels to sealing the deal – and how to speed up the process.
- Bus Driving School, Investor-Style: In this post, Glen Hellman explains – using the metaphor of (startup) buses picking up (investor) passengers – why you have to “un-entrepreneur” yourself to raise money. That means following these 4 rules, including (as Kalanick also advised) getting investors interested by hinting at how many other investors are interested.
- How to Create a Financial Plan That Investors Will Love: Dive down into the weeds to untangle the gnarly limbs of the financial plan, including unit economics, top-line revenue, and expense ratios. Investors will discount your projections anyway, but it’s always better to have them, Glen Hellman argues.
- Paul Singh on Venture Capitalists and Raising Money: Once you’ve gotten through the nitty-gritty, here are some higher-level tips to keep in mind. As Paul Singh of the 500 Startups accelerator notes, “investors are people, too” – they won’t have superhuman patience or attention spans to deal with your slip-ups.
- 5 Don’t-Go-There Investor Pitching Moments: Speaking of slip-ups, these 5 pitching mistakes will send a clear signal to your potential investor: you don’t know what you’re talking about. The bottom line is to do your research, and don’t act like you’re smarter than the person holding the dough.
- Lies Entrepreneurs Tell While Raising Capital: Short and sweet, this could also be called “Lies Entrepreneurs Shouldn’t Tell While Raising Capital.” Hellman gives the boot to expressions that will compromise your credibility, such as “my customers” and “to tell the truth.” He also reiterates some “don’t-go-there” lessons.
- Pitching High and Inside: Here’s one big mistake to add to the list: going into too much depth about your industry. There’s a fine line between demonstrating your expertise and putting an investor to sleep. And if you cross it, many investors will be all too eager to show you the door.
Working Out the Details
- Raising Capital: The No-Shop-Clause Trap: When investors give you a term sheet, it often contains the “necessary evil” of a no-shop clause: you can’t negotiate with other investors during the due diligence process. This post explains which startups will be hurt most by the no-shop clause and when to fight it.
- From a VC’s Perspective: Understanding Convertible Notes with Caps: Convertible notes allow entrepreneurs to raise money while postponing the valuation of the company, and caps guarantee a certain percentage of equity to the early investors. Aziz Gilani, a director at DFJ Mercury, explains how to deal with convertible notes with caps without scaring away future investors. Plus, he starts off with a good roundup of other opinions on the matter.
- VC Participating Preferred Stock – The Bottom Line on Your Bottom Line: In the most technical post of this bunch – bar graphs and all – take a look at how preferred stock affects returns to the entrepreneur after an exit. You’ll also get some advice about when to give in and give up that preferred status.
A Friendly Reminder
- Are You Venture Capital Fundable?: “A company must be the right type of company at the right stage of their development at the right time in the market to be VC fundable.” It's sometimes a harsh reality. Before you look for funding, make sure your startup doesn’t have any of these 5 traits.
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