All The Lessons For
Back To The Grid
Five Funding Sources for Startup: Venture Capital
Accelerators & Incubators, Seed Stage, Early Stage, Expansion, Exit
I'm not going to discuss all the varieties of financing that can be a part of VC funding, like bridge financing or down rounds. I'm going to stick to the basics and compress a few things. I like to cover the entire universe at a high-level, so you know what the game looks like. There will be plenty of time to drill down into specifics here and elsewhere.
I'm not going to give any advice on how to find, contact, or pitch VCs. That's been done to death and, in my opinion, there's no single right way.
I'm not going to talk about the funding process, i.e. term sheets, preferred shares, amended articles of incorporation, and so on. Why? See the previous two things I'm not going to talk about.
I'm not going to tell you whether or not you SHOULD focus on VC, but I will tell you this:
Fundraising, especially when it involves VC, is a long, painful, time-sucking process. It is a full time job. It will drain your resources and your sanity. It is not a measure of success, but it can pave the way to success. It can be dangerous, depending on who ends up with their hands on which control levers. It can be life-changing, when it comes at the right time for the right reasons.
If you don't know whether or not you need VC funding, you don't need it, because you're not ready. You should know exactly how much you need to raise and exactly what you're going to do with the money. You should already have relationships in place at a handful of Venture Capital firms before you make the decision.
But if you've already run the investor gauntlet of Customers, Self, Friends and Family, and Angel, and if you know you need VC funding, and if you know who you're going to reach out to first, second, and fiftieth, then it's time. Here's what the universe looks like:
Funding is the most complex part of startup. How, when, and why you get funded is an individual series of choices, and every startup will take a different path. No one strategy is better than another, but you should definitely have a strategy in place before you raise a dime.
Venture Capital investors are firms that manage funds that invest in startups. VC is what we think of when we think of traditional startup investment, and their money is often referred to as institutional capital (which mostly means the money is not coming from a single individual).
VC firms are usually staffed in a chain with Partners at the top. Limited Partners are investors in the fund, while General or Managing Partners are investors in the fund and also run it. Venture Partners and Principals find and make deals for the fund, and may or may not be invested. Associates are at the bottom of the chain. They create relationships and do research, but often don't have the authority to green light a deal on their own.
Some VCs will invest small amounts as early as the Seed Stage, alongside the founder, Friends and Family, and any Angel investors. However, most VCs won't invest until there is progress beyond the Seed Stage, what's called a Series A round. From there, additional rounds will be called Series B, Series C, and so on.
VCs are always looking for a return on their investment, either through the sale of shares in an Initial Public Offering (IPO) or via merger and acquisition, where the company is sold to another company or to another financial entity like a Private Equity Fund. Sometimes VCs are bought out in future Series rounds when new VCs come in.
In almost every case, once you're in the VC world, you're not getting out until the company sells, which is called the exit. Oh, you're going to need legal and accounting help on hand during the fundraising process and retain that help through the actual funding.
read the rest
VIDEO: What Does Success Look Like? - Episode 2.2
Teaching Startup: The Show
What does a successful entrepreneur look like? That's a pretty good question that shouldn't have an answer, but it does. There are two prototypes, the VC wannabe and the dorm room hoodie. And it's all dudes. And all of that needs to change.
But what about the rest of us? Do we entrepreneurs dress a certain way to stand out? Definitely. You need to cultivate your own look. It helps make people remember you. And the opposite, dressing for success, that doesn't help one iota. That's one of the things I love about startup. The ability to stand out or be contrarian helps you more often than it hurts you.
read the rest
THE SHOW: Why You Shouldn't Chase Venture Capital
Episode 3.4: The Last One With Thad Lewis
In our final episode with special guest Thad Lewis, we talk about sales and we talk about funding, the way they're related, and how they're different. Thad Lewis is an NFL quarterback, and in that, he's got a couple of things working in his favor that the average entrepreneur does not, namely, connections and money. But this doesn't necessarily give him a leg up.
We talk about Venture Capital. Thad doesn't need it. Thad doesn't want it. But he could get it, and he can also get money from other sources (friends, the bank, etc.) Outside funding should be the last thing on the entrepreneur's mind until they absolutely know they need it, so we talk about that here.
read the rest
VIDEO: How To Get Noticed
Teaching Startup: The Show - Episode 2.3
Getting noticed in startup is all about building relationships -- with your investors, with your customers, and with your potential investors and customers. Cultivating these relationships is one of the most important jobs for every founder, and it's a shame that a lot of entrepreneurs don't do it right.
WedPics co-founder Justin Miller is an entrepreneur you should try to be like, and not just because Jon Colgan and everyone he's ever met has said so. In this episode, Justin details how he establishes and maintains those relationships, and why they're so important. Getting noticed is about the long game, the slow burn, and there's rarely such a thing as overnight success.
read the rest
All Startups Are Scams
THE SHOW - Episode 4.2
There's a fine line between being a dreamer and being an entrepreneur. Don't get me wrong, I mean this in the best light possible. Without dreams, without suspension of disbelief, without the ignorance of what can't be done, the entrepreneur is no different than the cubicle drone. One thing separates the entrepreneur from the dreamer: Execution.
There's also a fine line between being an entrepreneur and being a scam artist. Let's face it, if you're doing startup right, you're doing something no one has ever done before with no proof it will work, much less succeed. And you're trying to sell that vaporware, that dream, those magic beans, to customers or investors or both.
read the rest
The Show: Episode 1.2 -- Are Startup Accelerators Worth It?
Startup accelerators are all the rage -- hard to get into and seemingly a one-way ticket to success. Colgan has been through 500 Startups, and Andy is on his way after a successful stint at The Startup Factory, so we have a conversation about the pros and cons.
read the rest
VIDEO: How To Build Relationships With Investors
Teaching Startup: The Show - Episode 2.4
Just because your startup landed venture capital, that doesn't mean you're successful. And just because you've been offered investment doesn't mean you should take it.
If you and your investors don't have a solid relationship, it could spell the end of your startup. Or maybe just the end of your leadership there.
What starts as a discussion about emulation versus experimentation (and maybe a little man-crush from Colgan), turns into the finer points of authenticity, honesty, and relationships with investors. Investment means the clock is ticking and the runway is getting shorter, every day. Those relationships are going to get real critical, real quick.
read the rest