Everytime a VC invests, they expect
High risk, low hit rate model
Last 5 years, VC underperforms NASDAQ
scalable– frequently winner take all - businesses
1s and 0s have~0 marginal cost.
Digital software or digital properties, platforms, is a common way to convince themselves
They want THE best team to execute an idea
Turn that around, why are YOU ‘THE’ team to make this opportunity a reality. How did you discover the problem that everyone needs solved, and why are you the best person to solve it?
What is the long term competitive advantage?
How are you going to defend your market position? IP, network effects, other Barriers to entry?
Doesn’t have to be the same for the life of the business
My recommendation, own the supply or demand side
My last life was in a digital distribution platform
We owned the consumer relationship
Not initially, though, three phase strategy to get there
We had the scalable platform play, the team, a competitive advantage. Raising VC easy right? Wrong
We had a weight problem - Turning $100k into $1mm, wont get VC.
VC need the ability to return their fund on each investment.
Their rule of thumb, $1bb market. US Comics are a $700m market, to skinny
Yes I just wanted to call myself skinny, might have been a stretch
Services, production software, Hardware, DRM and Platforms (e.g. Hulu, comiXology, Roku, Boxee, mobile games…)
Ask yourself what problem do you face on a regular basis - can it be solved with technology or an outsourced service.
Many of the best companies I have seen were started by entrepreneurs solving their own problems.
So you want to raise, here is a small set of advice
So you have the perfect equation, a massively profitable business, that is defensible, in a billion dollar market, with the perfect team. Now what
VCs take 30% of your business… in each round of investment,
but that is not all, before they take their 30%, you have to carve our an option pool, usually 20%
You answer to them – they can fire you
Hopefully, they are a good partner, many are great advisors and provide access
What can Hugh teach us about VC? 2 things
Remember, raising capital is like dating, and you are getting married to your investor for 5-7 years.
Also remember, everyone wants to date the hot girl/ guy
How do you make yourself Hot?
You don’t want to raise with your back against the wall– expect to run the company for 6 months while raising.
Informational meetings are your friend, build up a roledex on the right investors that you can call when you ‘are ready to raise’
Easy to say have 6 months of capital in the back.
If your back is up against a wall, maybe you can raise a convertible note that will last you for six months, then start raising your equity immediately. Note converts at a discount
not easy, condense the raise into as shot of a period of time as possible
How? The aforementioned informational meetings,
A targeted hit list ahead of time, don’t waist time with firms that aren’t a fit – Strike all at once
and most importantly over communicate. When you get a termsheet you will have 2 days to sign it. If you are progessing with one investor, let the others know. VCs = ADD
Ask yourself - does VC make sense for your business,
- does your business make sense for VC -
There are other options if go big or go home isn’t right
Friends & Family – or professional.
Look for people who have solved similar problems, built similar types of businesses, sold to the same customers.
They will be more excited about your business if it is good, and will likely be able to add more value to your business
Grants, they are out there, particularly for double bottom line businesses.
Crowd funding = Awesome, it is customer financing for the consumer market.
My favorite, many ways to bootstrap,
consult or
build off a services business,
Customerfinancing
