Raising Capital for Your Startup: It’s About More Than Money

Most of the time for most entrepreneurs, raising money for a startup is not a lot of fun. Absent some combination of a hot deal and a hot market, fundraising is a real chore, too often full of demoralizing turndowns and even more demoralizing walls of silence. Still, as bad as it can be, the process almost always includes some important opportunities that good entrepreneurs will seize and use to their advantage.

The first opportunity the capital chasing process offers is self-reflection. Asking other folks for risk capital forces you (at least if you expect any success) to think about your business objectively, from the perspective of an outsider. And not just any outsider, but a jaded professional investor. Vision and passion are certainly appreciated by most of these folks, but as table stakes, not closing arguments. To seal a deal, you will need to get back to the cold hard realities of your value proposition, your business model, your evolving competition, your financing plan, and your exit strategy. Mission critical stuff that can get lost in the fire drill of day-to-day startup life.

Another opportunity worth grabbing on to in the fundraising process is the learning opportunity. If you have been at all careful about qualifying your investors, you will be talking to folks who very likely know a lot about the environment – technology, competitive, financing, exit, etc. – your startup is living in. If you listen carefully, and ask good questions (you should, in all events, be vetting potential investors as much as they are vetting you), you will almost certainly learn a lot of valuable information from the fundraising process, as much or even more so from investors who turn you down.

Finally, the fundraising process will give you valuable feedback on your teams’ capabilities, collectively and independently, in an area – raising capital – that will only become more important as your capital needs grow on the road to your exit. Raising capital is a skill in its own right – indeed as mission critical a skill as there is. Getting a periodic handle on where your team measures up in that regard may not be worth the trouble in and of itself, but when you need the money you might as well get as much besides money as you can out of the process.

Approaching the fundraising process as a learning opportunity, as well as a way to generate needed capital, may not make the effort any more fun. But it can make it a lot more rewarding.

Advertisements

Measuring Startup Investing Returns Part III: An Apples to Apples Solution?

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, a Milwaukee Journal Sentinel blog covering start-ups and other Wisconsin technology news. Paul’s most recently contributed piece, “Measuring Startup Investing Returns Part III: An Apples to Apples Solution?,” can be found under their Business Tab in the Business Blog section: Click here to view his latest blog.

A short excerpt can be found below:

“In the first blog in this series, I argued that internal rate of return (“IRR”) is too sensitive to market timing distortions to be a good metric for the investment acumen of seed/early stage angel and venture capital investors. In Part II, I suggested that a metric that compared cash-on-cash (“CoC”) returns was better, but still subject to significant distortions associated with the timing, intensity and duration of market cycles. Today, I’ll explore another way to approach the problem; an approach that addresses the timing problem as encountered in both the IRR and the CoC metrics.”

Click here to read more.

Making Lemonade

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, a Milwaukee Journal Sentinel blog covering start-ups and other Wisconsin technology news. Paul’s most recently contributed piece, “Making Lemonade,” can be found under their Business Tab in the Business Blog section: Click here to view his latest blog.

A short excerpt can be found below:

“There’s been a lot of fretting lately about funding reductions for the UW system, including the flagship campus in Madison. There is no doubt that anything that reduces the real or perceived quantity and quality of either the research or educational output of the UW system has negative implications for Wisconsin’s economy. How much is a debate I won’t jump into. Instead, I’ll argue that the law of unintended consequences works both ways: that in some cases, including this one, the unintended consequences can be positive.

Click here to read more.

Generous, Not Philanthropic Thoughts on Seed Financing Structures

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, a Milwaukee Journal Sentinel blog covering start-ups and other Wisconsin technology news. Paul’s most recent contributed piece, “Generous, Not Philanthropic Thoughts on Seed Financing Structures,” can be found under their Business Tab in the Business Blog section: Click here to view his latest blog.

A short excerpt can be found below:

“There’s been a lot of talk recently about angel and other seed investors screwing up deals by insisting on overly complex investment terms that give early investors too much control over future financing rounds. And for good reason. Right here in Wisconsin I’ve seen investors insist on terms that lock entrepreneurs into investment structures that are expensive to implement and seriously complicate downstream investment options. Terms that turn win-win potential into lose-lose reality. That’s bad news for entrepreneurs and even for the too-smart-for-their-own-good investors.” Click here to read more.

Why (Not) Crowdfunding? Challenges for Jane Investor

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, a Milwaukee Journal Sentinel blog covering start-ups and other Wisconsin technology news. Paul’s most recent contributed piece, “Why (Not) Crowdfunding? Challenges for Jane Investor,” can be found under their Business Tab in the Business Blog section: Click here to view his latest blog.

A short excerpt can be found below:

I was on a panel last week talking about crowdfunding.  More particularly, crowdfunding in the context of the John and Jane Does of the world, which is to say middle class folks with modest financial resources.  “Unaccredited” investors, in the lingo of securities law, loosely defined as people who are not particularly wealthy.  Let’s call it “crowdfunding for the masses.”

Now first, let me say that philosophically I think crowdfunding for the masses is a fine idea.  As an old-fashioned Chicago School economic thinker and freedom of contract enthusiast, the idea that the government should prohibit consenting adults from entering into otherwise lawful business contracts of their own choosing just because one party doesn’t meet some government imposed wealth test strikes me as unfair.”

Convertible Debt: A Tool, Not a Panacea

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, has been selected as a regular contributor of OnRamp Labs, a Milwaukee Journal Sentinel blog covering start-ups and other Wisconsin technology news.

Paul’s most recent contributed piece, “Convertible Debt: A Tool, Not a Panacea,” can be found under their Business Tab in the Business Blog section: Click here to view his latest blog.

A short excerpt can be found below:

Convertible debt with an equity kicker – these days usually a discount on the conversion price – has been a part of the venture capital landscape for as long as I have been in the space, which takes it back thirty some years.  In the beginning, it was used mostly in the context of bridging a company cash for several days or maybe weeks while the company and its investors tackled the complexities of moving money and documents around when FedEx was in its infancy, fax machines with crinkly paper were costly and unreliable, and word processing was a cost center run more or less like the typing pools of the 1950s.

More recently, the convertible debt structure (and its cousin, convertible equity) has been adapted to seed stage financings, mostly as a way for investors and entrepreneurs to keep costs down and avoid talking about the elephant at the negotiating table – valuation.  And for good reason: with the right facts, a modest convertible debt deal can be a great way to move a company from the back-of-the-envelope hypothetical stage to the ready-for-serious-capital launch phase. Click here to read the latest entry.

Seed and Early Stage Due Diligence: Part 1

Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, is a regular contributor of OnRamp Labs, the Milwaukee Journal Sentinel‘s blog covering start-ups and other Wisconsin technology news.

Paul’s most recent contributed piece Seed and Early Stage Due Diligence: Part 1 can be found under their Business Tab in the Business Blog section.

Here is a short excerpt: Investing in seed and early stage high impact businesses can be fun, and now and again even financially rewarding. One of the tricks of the trade is appreciating how due diligence – the pre-investment process of determining whether a particular deal is what it says it is, and whether what it says it is has any value – for seed and early stage investing is different from due diligence when the potential investment is in a more established business, public or private. Herewith a couple of the key differences. Next time, a look at the “big four” due diligence enquiries for seed and early stage high impact business investors.