Finding and negotiating venture capital for your startup can be challenging. Where do you start? What do you need to think about? Who do you work with? – Let’s ask the pros: In this compilation of startup funding tips, venture capital experts share their expertise on how to rock your next financing round.
All featured experts were speakers at the 2018 Venture Capital Academy Switzerland, an executive education & certificate program by the University of California, Berkeley and Switzerland Global Enterprise focused on the nuts and bolts of VC deal making.
Michael Sidler, Board Member SECA, Co-Founder and Partner Redalpine Venture Partners
Your first and foremost goal needs to be to get an oversubscribed round – meaning to have more potential capital around the table than actually is needed in the round. That will generate a positive dynamics, ensure a swift closing of the round and avoid a lot of discussions / haggling about the conditions (valuation etc.). Go for great interpersonal chemistry, not necessarily the best deal terms. If possible, go for brand name investors.
Have a great story to tell. Keep steadily communicating to the world (especially the potential investors) about small achievements and successes to stay on top of their minds. This works best by collecting the contacts on a mailing list and by publishing occasional bits of news, also through social media (Twitter, LinkedIn).
Don’t consider fundraising a nuisance. It is and will be a core part of a founder’s job and never stops; after the round is before the round. Better start to get good at it and love it as part of your job.
Know your investors and make sure there is alignment with them as to development and exit.
Don’t be afraid to bring in industry experts as independent board members early – VC’s often confuse their roles as board members and investors.
Find a way to communicate early with your customers and don’t be afraid to iterate or pivot.
Adam Sterling, Executive Director, Berkeley Center for Law and Business, UC Berkeley
Understand what you are negotiating for. I’m constantly shocked by founders (and investors) who can close million dollar deals without understanding the basic economic and legal aspects of the deal. For example, we’ve seen a remarkable increase in the number of early stage startups funded through convertible securities (debt or equity instruments that eventually convert to preferred equity). A major deal aspect of those convertible securities is the valuation cap, which helps determine the maximum price at which the security will later convert to preferred equity. It is critical to understand that this does not constitute a present value for the company, however, many in the space fail to grasp this
Work your network. For better or worse, many VCs won’t fund companies unless they’ve been introduced to that company by someone in their own professional network. One of the best sources for this are companies and founders that the VC has previously funded.
Explore partnerships with established companies in your space. Established corporates are arguably the most important part of the venture ecosystem as they provide funding, serve as customers, and eventually acquire startups. Furthermore, while a traditional VC may be targeting a return they don’t believe your startup is capable of achieving, a corporate VC may see non-financial strategic benefits to investing.
Be clear how much money you need and want to raise. What do you want to achieve with this new funding, which milestones will you reach? Is it sufficient money to get there?
If you’re doing an ICO to fund your startup – don’t get greedy. Just because some ICOs have raised hundreds of millions doesn’t mean you need that much money too, rarely anybody still in startup mode needs that much money. Tezos really wanted 20-30 Millions, not over 200. Settle for something achievable. There are only handful highfliers like Google, Amazon, Facebook. Most companies will do quite well without ever getting to that level!
When launching an ICO, only do things that you would also offer your mother! Stand behind what you are doing. Fraud is not the same as failure, from failures you can recover, for fraud you will go to jail.
Have a strategy. The terms of each financing round will determine what you can do in future rounds and what possibilities you have for your exit. Think about where you want to go from the beginning.
Don’t wait for the investors to hand you their term sheet. Seize the opportunity and have a term sheet ready that reflects what a good financing round looks like to you.
It will be easier for you to find investors if your startup is due diligence ready. This includes having your IP sorted out. For example, if a contractor is developing an app for you, make sure you have a contract stating that you are the copyright owner. Otherwise, your developer might end up owning the copyright to your app.
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