Funding startups and you! Part I
Monday, May 26th, 2008
As Startup Weekend continues to grow and foster communities of development in the US and abroad, it seems more than likely that several companies formed or worked on at these weekends will eventually endeavor upon the funding adventure. With that in mind, funding in any form (venture capital, angel investments, grants, bootstrapping) can be somewhat confusing and daunting depending on your company’s needs. Although I am by no means a seasoned investment veteran, I have spent time on the other side of the VC table looking at companies as well as struggled with creating an effective pitch for investors.
As such, I thought I might just post a few thoughts about my personal experiences and link to some great sources of information and wisdom that I’ve encountered over the past year. In the first case, deciding when funding is needed can be a strategic decision or one of pure necessity. In the former, an entrepreneur and team may have an excellent idea that will require significant upfront capital or the added expertise of investors in that industry (biotech, biomedical devices, superconductors etc). On the other hand, funding can sometimes be absolutely essential (see Twitter) for a service to maintain scale and usability. Or, perhaps the company is doing just fine but 100 Aeron chairs and a company Porsche are essentials for success.
More often than not however, bootstrapping the venture will be the “funding” method used as professional investment occurs for only a minuscule portion of the new companies started each year. In this case, the founders should do everything they can to spend as little as possible and build the business to a point that either investment would make sense or it is generating enough revenue to be self-sustaining. Holding off on funding as long as possible will lead to a higher valuation, higher portion of the company retained for the founders, and an ideal situation for achieving the next level of growth and development. With this in mind and in dealing with web application development, holding off on pitching your idea will allow you to develop the idea to a point where funding makes sense and won’t take as large a portion of equity when the term sheet is put on the table. For more on this I would highly recommend checking out Brad Feld’s blog, the associated Ask the VC, Fred Wilson’s blog, and a variety of other sources that I’ll post in a list over time.
That is all for now but stay tuned for Part II — pitching tips and more links.
Popularity: 17% [?]
Tags: funding, venture capital
Yesterday I sat down with Stan James of lijit.com and talked about his experience taking an idea in a college dorm room to a funded company with 15 employees.
