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The personal costs of raising money | VentureBeat | Entrepreneur | by Francisco Dao, 50Kings

The personal costs of raising money | VentureBeat | Entrepreneur | by Francisco Dao, 50Kings | Pitch it! | Scoop.it

http://snip.ly/7bMn

In the tech industry, we celebrate raising money as a victory second only to that of a successful exit. But there's a huge downside to raising money that isn't often discussed.

And while I recognize that venture capital is often an unavoidable requirement for growing a business, most entrepreneurs, and the tech community at large — who often seem to push people into raising VC — would be better served viewing it as a necessary evil as opposed to an absolute win.

I’m sure you’ve heard the horror stories of entrepreneurs getting fired from their companies by their VCs, but most of those stories only tell the tale of the final straw. Have you ever thought about all the intermediate steps and indignities that came before the firing? Before those entrepreneurs signed the first term sheet, whatever they were working on was theirs and theirs alone. If you think about it, it’s a long journey from owning it all to getting fired from your dream. That’s a journey that is rarely discussed and not well understood.


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"I have so much gratitude in my soul right now. Growthink has helped me to come a long way since I've found the company and started making my business plan.
I'm counting my blessings every day."
Best Regards,
Trevor Houlihan



Marc Kneepkens's insight:

Keep your independence or work for the VC's? Big question.

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How To Raise Venture Capital

How To Raise Venture Capital | Pitch it! | Scoop.it


It’s no secret that entrepreneurs need funding to launch or grow their nascent companies, and some will seek the support of venture capitalists (VCs) to fulfill their ambitions. For many entrepreneurs, myself included, pitching to potential investors is far from an enjoyable task; at times, it can even appear to be a wasted effort. According to this report, venture capitalists provided $29.5 billion in funding to 3,382 businesses in 2013, so they have earned an unfortunate reputation as a necessary evil in the startup world.

Part of the problem stems from the fact that aspiring entrepreneurs, particularly first-time founders, don’t know how to engage or attract potential investors. Inexperienced entrepreneurs employ a blanket approach by giving the same rehearsed spiel to any venture capitalist who is willing to listen. In the end, nobody wins.

My current company, Retention Science, is my third business endeavor, and through the course of raising money for three companies, I learned firsthand how arduous and difficult the fundraising process could be. But it doesn’t necessarily have to be the case. The negative stigma associated with securing funding isn’t a given; it doesn’t have to be a nerve-racking ordeal, and it certainly doesn’t have to be a perpetual disappointment.

I’ve learned a few key tactics that can prove invaluable when pitching a company to prospective investors.

Don’t Talk To Everybody

Contrary to popular belief, it’s not wise to pitch to anybody who will listen (though it is understandably difficult to say no to meetings). Your time is just as valuable as the VCs and you should only meet with VCs who specialize in your field.

It is also critical to identify the right partner to pitch to within a VC. Every partner has different investment interests, styles and seniority within the firm. Start by targeting ones who are most likely to be interested in your company.

When I started Retention Science, we listed ourselves on AngelList, a popular funding platform for startups, and received around 25 intro requests, but we only took meetings with a select few that made sense for our company. For instance, I met with Katherine Barr at Mohr Davidow Ventures because of their proven track record with successful B2B enterprise companies like Rocket Fuel  and Rally Software. They also had a known venture partner, Geoffrey Moore, who authored Crossing the Chasm, a respected publication on selling and marketing high-tech products like ours.

Look Into Your Own Network

One way to filter the investors you should meet up with is to target people who you already know, either directly or indirectly. After all, it is much easier for VCs to take an aspiring entrepreneur seriously when introduced by someone they already trust or know.

For instance, Andy Rankin, one of our earliest Angel Investors, introduced me to Kirsten Green, the founder of Forerunner Ventures. At the time, I wasn’t actively seeking capital, and I had instead hoped to be given the opportunity to work with her impressive list of portfolio companies, including Bonobos, Warby Parker and Birchbox. As we continued discussions, however, Kirsten realized that many of her commerce-based portfolio companies had the exact same needs that Retention Science was addressing. Our conversation quickly shifted away from a sales angle to a fundraising one because Kirsten was interested in being a part of the company. The shift was very serendipitous and natural once we realized that we’d be great partners with each other. But if it weren’t for the initial connection by Andy, we’d have never met Kirsten in the first place.

Research, Research, and Research More

Pitching to investors involves making a personal connection and telling a story they can relate to from their own investment experiences. A successful pitch is not only about the idea; it is about helping the investors to see your vision, size up the market, and, most importantly, foresee a profitable business model. Assuming you already know everything there is about your industry, make sure you thoroughly research everyone you will be speaking to so you can identify ways to connect on a personal level.

Whenever I confirmed a meeting with prospective investors at VC firms, I would thoroughly research all the partners who I might speak to. I familiarized myself with their previous investments, their philosophies, and their LinkedIn profiles, and I drafted notes and questions based on this information.

By the time I actually arrived at the meeting, I was able to modify my pitch to reflect the specific investment and professional experiences of the partners who were present. By the time I pitched for Retention Science, I convinced four partners from Mohr Davidow to sign on with us within a 24 hour span, the quickest turnaround I’ve ever had.

Be Yourself

When pitching to investors, it can be all too easy to revert to a façade of no-nonsense professionalism. However, it is important to remember to be yourself and to act natural. After all, as much as partners invest in an idea, they also invest in people.

As the saying goes, you are only human, so relax. It will make it much easier to demonstrate your knowledge of the problem you are trying to solve, your expertise in the market you are trying to enter, and your genuine excitement to create a viable, profitable solution.

Investors are trained to see through the “smoke and mirrors” of superficiality. They are generally good judges of character regardless of how you present yourself. So the best bet is to go into a meeting as yourself. An advisor once recommended that I pitch myself and my business differently to compensate for my youth and my enthusiasm, which, I was told, made me seem inexperienced and desperate. I tried to modify my actions accordingly, but in the end, I realized that I wouldn’t want to partner with an investor who wasn’t willing to work with me as I am.

You Can’t Control Everything, Such As Timing & Luck

Timing is everything in life, and it no different for fundraising. The outcome of many interactions with investors will hinge on the timing of the meeting. Some factors are beyond your control. If a VC just concluded a successful investment with a company similar to your own, they are more likely to look favorably on your proposal. But if they just came out of a lengthy board meeting, you may have difficulty capturing their full attention. Though you have no way of knowing an investor’s state of mind, you can at least do a little casual probing to gauge their mind frame before you launch into your pitch, and adjust accordingly.

There are some factors that you can control. If a VC gets in touch with you about setting up a meeting, be prompt to respond. You’ll be more likely to guarantee yourself an optimal time slot. Also, make sure to show up earlier than your meeting time. With luck, you may be able to snag a few extra minutes of time to pitch your company.

It is also critical to remember that VCs are generally busy people with jobs and lives outside of their meetings, so it will likely be difficult for them all to gather in a single room and agree to place their money in a certain company. The decision-making process is often delayed, so remain patient. At the same time, while persistence is always good, avoid resorting to obsessive emails or phone calls, which can quickly morph into annoyance.

Follow Up and Perform Due Diligence

Fundraising is not rocket science, yet many entrepreneurs drop the ball when closing a deal. Remember that a verbal commitment is not the same as a signed agreement, so keep working with your partners until the money is in the bank.

Until the partnership is legally finalized, make sure you attentively and directly answer all of the requests that come your way—investors take everything into account when forming their impression of you, and they are probably taking notes on how well you respond to their additional requests when handling the final steps of the fundraising process. Expect to receive numerous follow-up requests of all types, and respond to them in a thorough, timely, and professional manner.

Final Thoughts

Fundraising has developed a negative stigma, possibly because entrepreneurs see it as a necessary evil and a stressful ordeal. But it does not have to be the case. Fundraising involves more than just securing financial support – it also entails working with the right partners who can take a company to new heights. So rather than fear the process of raising money, cherish the learning experience and revel in the opportunity to make new connections.

Though it may sound cliché, fundraising is much like getting married. Your partner provides not only financial support; they also lend you their expertise, time, and invaluable advice. Our investors at Retention Science visit our office frequently enough to be called honorary team members, and having them around constantly reminds me that they are so much more than sources of capital. When you can feel that way about your investors, you’ll know you’ve made the right partnership.



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Why co-founders are the secret to start-up success: DesignCrowd founder Alec Lynch

Why co-founders are the secret to start-up success: DesignCrowd founder Alec Lynch | Pitch it! | Scoop.it

DesignCrowd founder and chief executive Alec Lynch on the pros and cons of having co-founders, how many is ideal and where you find them.

So, you have a million-dollar business idea, but haven’t started working on it. You might be wondering: “do I need a co-founder?”

Most successful start-ups or tech businesses have multiple founders. Google, Facebook, Twitter, LinkedIn, YouTube, Groupon, Uber, Square, Instagram, to name a few.

But does it make sense for you?

For some businesses, having co-founders occurs organically. You discuss a business idea with a friend or group of people and start working on it together.

However, in many cases, bringing on a co-founder (or co-founders) will be a conscious decision.

In this article, I will look at six questions that will help you determine if getting a co-founder is right for you and, if so, what to look for in a co-founder.

To read the full article, click on the title.



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Via Ivan Berlocher
Marc Kneepkens's insight:

Co-founders balance the startup team, either with a business background, or other knowledge or experience needed to guarantee the success of the startup. Going it alone is extremely hard.

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10 Things I’ve Learned from Working at a Startup

10 Things I’ve Learned from Working at a Startup | Pitch it! | Scoop.it
We've all heard about how difficult, fun and challenging it can be to work at a startup. In fact, being a part of a small team who's trying to change the way things are is a great adventure that requires lots of engagement and passion.

My name is Fred, and I've been a member of a startup team for almost two years now. There are many things that I've learned here that couldn't have picked up elsewhere, not only in terms of professional experiences, but also about myself.

The first thing you need to know about working in a startup is that you need to be a passionate person. Not only because it requires hard work, but also because you'll quickly feel overwhelmed and you'll loose your foothold if you're not passionate about what you're doing.

To help understand what it means to be part of a startup, here are the top 10 things that I've learned from working at Azendoo.

To read the full article, click on the title or image.



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Marc Kneepkens's insight:

To address the comments under this article : all companies have been startups at some point. If you don't want to work hard, go just be an employee somewhere and dream of white beaches and long vacations and working from home the rest of your life.

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The Good and the Bad of Bootstrapping

The Good and the Bad of Bootstrapping | Pitch it! | Scoop.it

When you start a business, there are many financing options to consider — friends and family, small business loans, angel investment, VCs — but there is no textbook solution for getting a new business off the ground.

One option that entrepreneurs, investors, and average Joes love to love is bootstrapping. Rather than seeking external funding, entrepreneurs who bootstrap their companies rely on savings, early cash flow and conservative money management. The age-old concept of the American dream lives on in the world of startups — we have pulled ourselves up by our bootstraps.

My co-founders and I have confronted the good, the bad, and the ugly of choosing not to use outside capital in the inception and growth of Ampush. Here’s my take on the double-edged sword known as bootstrapping:

Retaining Full Control

Without a board to impose its ideas, timelines or limits, we are able to be opportunistic, nimble and adaptive. We determine which strategic vision to follow. Since we don’t have to wait for approval, we can execute that vision or make changes at our own speed. We also learn at our own pace; we make mistakes but keep going. By retaining full control of the company, my co-founders — the people who understand the business best and run it day to day — and I are in control of its future.

For every pro of retaining full control, there is also a con. As an independent, we are responsible for making decisions that might be unpopular with clients, employees or partners, but that are right for the business. We are also unable to tap into the valuable networks of board members because — guess what! — we are the board. Because no one is looking over our collective shoulder, it can take much longer to figure out that we have made a mistake. These are not impossible hurdles to overcome, but it requires a little extra work and reaching out to mentors in the industry to lend their expertise.

Clients Take Center Stage

We often see other entrepreneurs build businesses that their VCs or boards want them to build, rather than ones their customers want. We don’t have that problem; we know who butters our bread (our clients) and we keep them front and center always when making decisions. We’re focused on their needs and making their lives better.

However, going at it alone can put limitations on our flexibility. What happens if we lose our biggest client? Everything will stop until they come back or we find other clients. Sometimes building the right solution for our clients is expensive and, without an injection of capital, we have to be scrappy when it comes to R&D.

Managing Resources

Because there’s no “free” money floating around, each new team member knows and appreciates the value of a dollar. After all, the founders went 18 months without a salary and found a way to get their first clients and travel to conferences for free. At Ampush, we call this hustle. One of our mottos is Invest Rather Than Spend — it keeps the team focused on creative ways to solve problems. There will be times when we do need to spend on something or someone, like recruiting or internal tools. But we only do so if we can ensure that these expenditures will reap bigger rewards.

Without outside investment, near-term cash flow and revenue almost always matter. We constantly thread the needle: keep growing aggressively while managing cash flow and planning for rainy days. While this near-term focus ensures that business will keep driving forward, as revenue is the key to the future, bootstrapping can hinder forward thinking and building for the long haul.

Bootstrapping a company is no easy feat, but it comes with a whole host of rewards. We are in full control of our destiny. We focus solely on our clients and are always aware of our resources and how to get the most out of them.


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Marc Kneepkens's insight:

VC's and Angel Investors will appreciate the fact that founders were bootstrapping and working with their own funds. It shows commitment and focus. Getting successful that way and then looking for additional funding allows them to invest in serious companies who will not squander their monies and who have a client base and working business model, not just and idea.

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StaceyKirsch's curator insight, October 10, 2014 8:54 PM

Build the business you want to build, but make every dollar count

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Founders Should Focus On Two Things, and Only Two Things.

Founders Should Focus On Two Things, and Only Two Things. | Pitch it! | Scoop.it

Focus is everything. As John Lee Dumas puts it FOCUS is “Follow One Course Until Success”. It is easy to get caught up in Meetups, connecting with other entrepreneurs, reading books that are good but not necessarily helping you with your business TODAY and spending way too much time on the non-essential parts of your business such as branding, marketing, etc.

I think Paul Graham from Y Combinator hits the nail on the head “A startup founder should be writing code and talking to users. That’s it.” As entrepreneurs we tend to get a little ADD but it’s vital we remind ourselves that the ultimate path to success is through building strong learning environments around users and quickly developing a solid minimum viable product (MVP) to get validation sooner rather than later.

Take time to meditate on the current distribution of your time and realign your prioritizes as needed. Go get ‘em!


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Via Ivan Berlocher
Marc Kneepkens's insight:

Exactly, focus is everything. Whether you write code or create a new product or service, make it happen. And find out from your customers if this is what they really want.

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Why Startup Founders Happily Give Up 90% Of Their Companies

Why Startup Founders Happily Give Up 90% Of Their Companies | Pitch it! | Scoop.it
These days, by the time a tech company goes public, the founders tend to own very little of it. We asked two founders: what gives?

Many people in the tech industry dream of building a startup, making it grow, taking it public, and growing rich along the way.

All of that is perfectly possible, but one thing these dreamers don't always realize is that these days, by the time a tech company goes public, the founders tend to own very little of it.

Often they own less than 10% of their own companies. For instance, among the tech industry's most recent S1 forms, Aaron Levie, founder of Box, will own about 6% after the IPO. Zendesk co-founder and CEO Mikkel Svane will own about 8% after the IPO.

We asked two founders of two hot startups, "What gives?"

To read the full article, click on the title or image.



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Marc Kneepkens's insight:

Still significant stakes, and key people in the organization get them also.

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How to calculate the equity split between co-founders in a startup

How to calculate the equity split between co-founders in a startup | Pitch it! | Scoop.it

George Deeb is the Managing Partner at Chicago-based Red Rocket Ventures, a startup consulting and financial advisory firm based in Chicago. You can follow George on Twitter at @georgedeeb and @RedRocketVC.

 

There are a lot of variables to go into calculating a fair equity split a startup team. These key factors must consider each employee’s role(s) within the company, the compensation they receive for their work, the people investing in the company, and the people behind the idea of the company. Let’s tackle each of these points below.

To read the full article, click on the title.


Is your Business Plan working? Is it Succeeding? http://bit.ly/1iHk8zP


Via Russ Merz, Ph.D.
Marc Kneepkens's insight:

Starting out on the right foot is extremely important. Sit down and agree, before you get into huge disagreements.

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Russ Merz, Ph.D.'s curator insight, November 20, 2013 7:28 PM

Discusses four factors to take into consideration when determining equity split among venture partners.