Talk to
• Your lawyer or accountant about seeking VC funding, chances are they can refer you to someone in their network that can help you, there’s no need to re-invent the wheel…
• Someone you know who received VC funding and gain from their insight, preferably in your same sector.
Be prepared to
• Submit very sensitive information such as your credit history as well as some proprietary info
• Be grilled by the VC if you’re invited to the interview
• Lose some control over your company as VCs bring in market best practices that you were not aware of, or bring in someone better to do the job than your pal Joe.
Be informed
• Know the legal documents you will be signing as part of the VC process such as the Term Sheet and Non-Disclosure Agreements (NDA) among others. Your friendly neighborhood VC attorneys put together templates of model legal documents at National Venture Capital Association .
• Subscribe to internet websites such as www.privateequityinfo.com, www.venturedeal.com, www.capitalvector.com, www.PEHub.com or www.privateplacementletter.com
• Learn more about the VC industry by subscribing to journals such as Reuter’s own Venture Capital Journal (see www.VCJnews.com) and Private Equity Week (see www.PEWnews.com) or Buyouts News (see www.buyoutsnews.com)
• Check out VC “tweeters” at www.venturemaven.com, which maybe relevant
Research your potential suitors
• Research suitors at Venture Capital associations such as National Venture Capital Association at www.NVCA.org and the New England Venture Capital Association at www.NewEnglandVC.org ($300 annual dues)
Miscellaneous stuff
• The majority of investments are going to Biotechnology, Medical Devices and Software with the majority going to Silicon Valley followed by New England
• Recent IPOs were mostly of companies that were incubated in 2000 – 2003, a challenging cycle
• The hottest trends are in Cleantech/Energy and the Internet
• Your VC should bring more than money, they can add value in more ways than one.
A final thought, you’ll thank me for this:
Try to combine the famous 10-second elevator sales pitch with your business card and include the following on the back of your card:
• What? What novel idea you hope to offer – the supply side of your pitch
• Why? Why is there a need for your idea – the demand side of your pitch
• How? Is it proprietary – is it feasible
• Who? The people that make it happen
• When? Is it ready for production or still on the drawing board
• Use bullet points and don’t forget to KISS it (Keep it simple smarty)
o This way busy VCs might recall you when the time is ready
Happy Funding!
EZ the VC
Disclaimer: Please note that the info provided is for the sole purpose of educating the reader and does not entail an endorsement in the above mentioned organizations or websites.
Monday, August 24, 2009
Friday, August 21, 2009
So Who are the People Who Can Potentially Invest in Your Company?
There are several interested parties who would like to see your venture succeed and can be categorized into four types:
The first line of investors:
This group typically includes your family, friends, American Express, Mastercard, Visa, oh and your Discover card.
The second line of investors:
Typically, this involves your suppliers (as creditors, they do finance your company) and especially if they are strategic suppliers who share your market interests. More often this group includes Angel Investors who are affluent individuals who organize themselves into Angel groups and can focus on anything from broad community-based investments to narrow geographical or sector-focused investments.
Angel Investors are similar to VCs in that they are as professional but because they invest their own funds (rather than manage the pooled assets of third-parties) and enter at earlier stages typically have a greater risk/reward appetite than a VC.
Another investor is Uncle Sam. The US government’s Small Business Administration (SBA) has the “New Markets Venture Capital” program which primarily focuses on economic development of low-income areas. Another program from Uncle Sam is the Small Business Investment Company (SBIC) program which helped fund companies such as Intel, Staples, Apple, AOL and Sun Microsystems to name a few. Unfortunately, this program was significantly curtailed in 2005.
The third line of investors:
The Venture Capitalists and Private Equity Investors. But who are these nameless benefactors? Anybody with a lot of money, except for your bank, that’s who. They include everybody from Former US Presidents and Vice Presidents (Bush Sr. and Gore, respectively) to university endowments and state agencies such as CalPERS.
Name brand companies such as Intel have their own PE/VC arms; Intel Capital invests in technology worldwide.
Heck, even Communist China is now in on the game via its China Investment Corporation (CIC), China’s sovereign wealth fund set up in 2007 to manage $200 billion of China’s $2 Trillion currency reserves, but already owns 9.9% of Morgan Stanley and also has an interest in Blackstone Group, one of the largest firms that specializes in Private Equity and R.E. investments which also happens to be publicly traded, who knew!!!
The fourth line of investors:
The public at large. Members of the general public become investors via an Initial Public Offering (IPO) where you can offload some equity in your growing company in exchange for some valuable consideration. This is where you and your equity partners can be expected to go your separate ways. But it does not necessarily have to end there as some partners may decide to stay on and cultivate strategic alliances for the venture in the market place.
Investors come in all shapes and sizes from mom and dad to China…
Happy funding,
EZ the VC
http://en.wikipedia.org/wiki/Angel_investors
http://www.sba.gov
http://www.sba.gov/aboutsba/sbaprograms/inv/nmvc/INV_NMVC_INDEX.html
http://en.wikipedia.org/wiki/Small_Business_Administration#Small_Business_Investment_Companies_.28SBICs.29
http://www.intel.com/capital/
http://www.china-inv.cn/cicen/
http://en.wikipedia.org/wiki/China_Investment_Corporation
The first line of investors:
This group typically includes your family, friends, American Express, Mastercard, Visa, oh and your Discover card.
The second line of investors:
Typically, this involves your suppliers (as creditors, they do finance your company) and especially if they are strategic suppliers who share your market interests. More often this group includes Angel Investors who are affluent individuals who organize themselves into Angel groups and can focus on anything from broad community-based investments to narrow geographical or sector-focused investments.
Angel Investors are similar to VCs in that they are as professional but because they invest their own funds (rather than manage the pooled assets of third-parties) and enter at earlier stages typically have a greater risk/reward appetite than a VC.
Another investor is Uncle Sam. The US government’s Small Business Administration (SBA) has the “New Markets Venture Capital” program which primarily focuses on economic development of low-income areas. Another program from Uncle Sam is the Small Business Investment Company (SBIC) program which helped fund companies such as Intel, Staples, Apple, AOL and Sun Microsystems to name a few. Unfortunately, this program was significantly curtailed in 2005.
The third line of investors:
The Venture Capitalists and Private Equity Investors. But who are these nameless benefactors? Anybody with a lot of money, except for your bank, that’s who. They include everybody from Former US Presidents and Vice Presidents (Bush Sr. and Gore, respectively) to university endowments and state agencies such as CalPERS.
Name brand companies such as Intel have their own PE/VC arms; Intel Capital invests in technology worldwide.
Heck, even Communist China is now in on the game via its China Investment Corporation (CIC), China’s sovereign wealth fund set up in 2007 to manage $200 billion of China’s $2 Trillion currency reserves, but already owns 9.9% of Morgan Stanley and also has an interest in Blackstone Group, one of the largest firms that specializes in Private Equity and R.E. investments which also happens to be publicly traded, who knew!!!
The fourth line of investors:
The public at large. Members of the general public become investors via an Initial Public Offering (IPO) where you can offload some equity in your growing company in exchange for some valuable consideration. This is where you and your equity partners can be expected to go your separate ways. But it does not necessarily have to end there as some partners may decide to stay on and cultivate strategic alliances for the venture in the market place.
Investors come in all shapes and sizes from mom and dad to China…
Happy funding,
EZ the VC
http://en.wikipedia.org/wiki/Angel_investors
http://www.sba.gov
http://www.sba.gov/aboutsba/sbaprograms/inv/nmvc/INV_NMVC_INDEX.html
http://en.wikipedia.org/wiki/Small_Business_Administration#Small_Business_Investment_Companies_.28SBICs.29
http://www.intel.com/capital/
http://www.china-inv.cn/cicen/
http://en.wikipedia.org/wiki/China_Investment_Corporation
Thursday, August 20, 2009
VC Funding Rounds
If your business plan is one of the 1% that actually received funding from the VC, consider yourself lucky, maybe…
Anyway, VCs inject funds intermittently and when benchmarks are met. You will need to know the names of these “rounds” beforehand to know where you stand in the funding cycle and in a “nutshell”:
Seed Money
The initial small-amount investment made by investors other than the VCs (family, friends, and credit cards) to kick-start the venture for little or no collateral.
Start-up Money
Another round of pre-VC small-investments used to fund marketing and product development when you finally have something tangible. Angel Investors (think of them as you fairy god parents) come in and typically throw in a six-digit investment as debt or equity without meddling into the company’s affairs.
First-round or early stage capital
Once your idea is proven viable or worth further investigation, the VCs make their initial investment in exchange for ordinary shares in your company.
Second-stage capital
The venture is ideally breaking even. VCs assesses the venture’s situation and as the venture reaches certain success milestones such as actual market sales, more VC funding follows. If the VCs have second thoughts, they may re-think their investment entirely.
Mezzanine financing or third-stage capital
This follow-on funding that helps to expand the venture’s working capital. Ideally, the venture is starting to turn a profit and only needs more capital to “expand”. Funding is typically via debt or preferred stock. Here the venture is typically benchmarked against the competition, if any.
Bridge financing or fourth-stage capital
The last step in VC funding that sets the stage for the VCs divestment/exit either via IPO or trade sale. This is where both you and the VC get a nice big fat reward for the risks endured and can happen anytime between three to seven years of the VC’s engagement.
But be warned, that at anytime during the investment funding cycle, you or some other manager may be asked to step down from your post, but not as an investor. This is only natural as the venture starts to grow and take a life of its own.
After that, you can take that long planned trip to the Bahamas that you’ve been dreaming about.
Happy funding,
EZ the VC
http://en.wikipedia.org/wiki/Startup_funding
http://en.wikipedia.org/wiki/Mezzanine_financing
http://en.wikipedia.org/wiki/Angel_investors
Anyway, VCs inject funds intermittently and when benchmarks are met. You will need to know the names of these “rounds” beforehand to know where you stand in the funding cycle and in a “nutshell”:
Seed Money
The initial small-amount investment made by investors other than the VCs (family, friends, and credit cards) to kick-start the venture for little or no collateral.
Start-up Money
Another round of pre-VC small-investments used to fund marketing and product development when you finally have something tangible. Angel Investors (think of them as you fairy god parents) come in and typically throw in a six-digit investment as debt or equity without meddling into the company’s affairs.
First-round or early stage capital
Once your idea is proven viable or worth further investigation, the VCs make their initial investment in exchange for ordinary shares in your company.
Second-stage capital
The venture is ideally breaking even. VCs assesses the venture’s situation and as the venture reaches certain success milestones such as actual market sales, more VC funding follows. If the VCs have second thoughts, they may re-think their investment entirely.
Mezzanine financing or third-stage capital
This follow-on funding that helps to expand the venture’s working capital. Ideally, the venture is starting to turn a profit and only needs more capital to “expand”. Funding is typically via debt or preferred stock. Here the venture is typically benchmarked against the competition, if any.
Bridge financing or fourth-stage capital
The last step in VC funding that sets the stage for the VCs divestment/exit either via IPO or trade sale. This is where both you and the VC get a nice big fat reward for the risks endured and can happen anytime between three to seven years of the VC’s engagement.
But be warned, that at anytime during the investment funding cycle, you or some other manager may be asked to step down from your post, but not as an investor. This is only natural as the venture starts to grow and take a life of its own.
After that, you can take that long planned trip to the Bahamas that you’ve been dreaming about.
Happy funding,
EZ the VC
http://en.wikipedia.org/wiki/Startup_funding
http://en.wikipedia.org/wiki/Mezzanine_financing
http://en.wikipedia.org/wiki/Angel_investors
Wednesday, August 19, 2009
Steps in the VC Funding Process
What do I need to do?
First, you can choose to approach a VC directly but a referral from a trusted professional such as a lawyer who works with VCs would be better.
Second, bait them with a smart business plan. Ideally, one that has an executive summary that attracts, maintains, and develops the VCs interest in your company, complete with supporting documents. The plan has to be realistic in that it objectively maps out the plan and corresponding cash flows including future growth, contingencies, and most importantly, the VC’s eye-catching liquidation options. If they like what they see in the executive summary, they’ll start nibbling on the actual business plan and might even be interested in funding it.
When writing the plan try a Who, What, Where, How and Why format to explain and must include:
• The concept itself
• The potential market size: Is there a recognized market for the idea? Give a 2 year plan and the several benchmarks to be achieved within that time-frame
• Market Analysis using known business management models such as Porter’s Five Forces Analysis – to describe the supply and demand as well as issues and solutions
• Execution: Operations, R&D, marketing and sales plan
• Address all the pitfalls and contingencies, examples include:Why your management team won’t be picked off one by one by your competition because they all have equity invested and thus vested interest, and Key-man Clauses
• Team members: Resumes; Feature the veterans who have the wisdom of several economic cycles under their belts
• Financials – the second most important document for VCs. Show how little cash you need to remain self-sustainable once you break-even but most importantly, you must be realistic
• Liquidations routes – the most important issue for VCs
• Non-disclosure agreements (NDAs) – the most important issue for the entrepreneurs
Third, if the VCs are even remotely interested, they’ll invite you (please bring your entire team along) to meet with the partners and grill you till you’re burnt to a crisp (just to see how you react to pressure). Keep in mind that VCs receive tons of business plans which are mostly discarded, so just to be interviewed by the partners is a big-step along the process of funding. But don’t wait to hear from the VCs, rather, be proactive and follow-up with the contact person and quickly fill in any blanks that may exist.
Fourth, the VC begins to conduct their internal due diligence processes. If your venture meets the VC’s requirements, it will be offered a “Term Sheet” which goes into the details of the VCs “private placement” for shares in your company in exchange for this “round” of funding. This will include among other things:
• The amount of the investment
• The pre-money and post-money valuation of the company – very important to
the entrepreneur
• Price per share of company stock
• Anti-dilution provisions – very important to the VC
• Voting rights
• Board representation – a must for the VC
Keep in mind that less than 1% of all submitted business plan eventually reach the funding phase.
Happy funding…
EZ the VC
Tuesday, August 18, 2009
Thinking of further funding for your “burning” hot venture?
So, your little business is successful and is expanding. That’s great!
So why are you so upset?
Ooh… Your “burn rate” (cash spent per month) is exceeding forecasts because your company is growing beyond your wildest expectations and your reliable funding sources like your Mom and Dad, credit cards, and best friends are maxed out, yikes!
Have no fear, VC is here…
No, VC is not an STD but an acronym for Venture Capital; a viable alternative to more debt financing that can come at a cost.
Venture Capitalists typically invest in companies with huge growth potential, usually in high-tech start-ups. Because VCs invest in “potential” early rather than in latter but proven tangible growth, they are similar to start-up entrepreneurs in that they face great risk which can potentially lead to a complete loss of invested capital should the start-ups fail (remember the dot-com crash? Ouch).
So why do VCs invest in potential?
Because the potential rewards can be even greater; the risks are offset by proceeds from successful portfolio companies distributing multiple returns on VC investments. How? Professional VCs use their cumulative investment experiences to minimize their exposures and maximize their limited resources.
But why VCs, you ask?
VCs play an important role in economies by investing in companies that are cash-strapped and cannot secure bank loans because they don’t have any tangible assets to trade as collateral. VCs typically begin to invest cash in exchange for shares in the portfolio company and later supplement with debt financing.
VC is a broad sub-component of Private Equity, an asset class of equity securities in privately held companies, that is typically funded by High Net Worth Individuals (HNWIs) or Institutional Investors via pooled investment vehicles or funds operating as LLCs.
VCs also offer value beyond the traditional financing role by adding skill sets and industry connections not easily attainable by new enterprises. But VCs also take a more hands-on approach to their portfolio companies by securing Board of Director positions that can influence company decisions and via restrictive covenants among other things.
It’s my company, why would I want to give up control to some VC, you say?
VCs can be a “double-edged sword” in the sense that you give up some control over the venture only to gain in strategic guidance, operational expertise and corporate governance among other things. It’s like being married; you yield some individuality to “synchronize” with your VC partner and benefit from the resulting synergizes, after all it is long-term partnership at least until the IPO or other liquidation event.
Ooh… that’s why…
Ultimately, you can go it alone and maintain control over your successful venture, but if you want your successful business to grow you’re going to need financing. Chances are that your best bet is a “suitable” VC, especially if you have no collateral.
By the way, VCs tend to discard virtually all the investment opportunities offered to them, so if a VC comes knocking do get to finicky, go open your door. Can you imagine where Bill Gates, Pierre Omidyar, Steve Jobs or Michael Dell would be if they didn’t?
Think about it…
EZ the VC
So why are you so upset?
Ooh… Your “burn rate” (cash spent per month) is exceeding forecasts because your company is growing beyond your wildest expectations and your reliable funding sources like your Mom and Dad, credit cards, and best friends are maxed out, yikes!
Have no fear, VC is here…
No, VC is not an STD but an acronym for Venture Capital; a viable alternative to more debt financing that can come at a cost.
Venture Capitalists typically invest in companies with huge growth potential, usually in high-tech start-ups. Because VCs invest in “potential” early rather than in latter but proven tangible growth, they are similar to start-up entrepreneurs in that they face great risk which can potentially lead to a complete loss of invested capital should the start-ups fail (remember the dot-com crash? Ouch).
So why do VCs invest in potential?
Because the potential rewards can be even greater; the risks are offset by proceeds from successful portfolio companies distributing multiple returns on VC investments. How? Professional VCs use their cumulative investment experiences to minimize their exposures and maximize their limited resources.
But why VCs, you ask?
VCs play an important role in economies by investing in companies that are cash-strapped and cannot secure bank loans because they don’t have any tangible assets to trade as collateral. VCs typically begin to invest cash in exchange for shares in the portfolio company and later supplement with debt financing.
VC is a broad sub-component of Private Equity, an asset class of equity securities in privately held companies, that is typically funded by High Net Worth Individuals (HNWIs) or Institutional Investors via pooled investment vehicles or funds operating as LLCs.
VCs also offer value beyond the traditional financing role by adding skill sets and industry connections not easily attainable by new enterprises. But VCs also take a more hands-on approach to their portfolio companies by securing Board of Director positions that can influence company decisions and via restrictive covenants among other things.
It’s my company, why would I want to give up control to some VC, you say?
VCs can be a “double-edged sword” in the sense that you give up some control over the venture only to gain in strategic guidance, operational expertise and corporate governance among other things. It’s like being married; you yield some individuality to “synchronize” with your VC partner and benefit from the resulting synergizes, after all it is long-term partnership at least until the IPO or other liquidation event.
Ooh… that’s why…
Ultimately, you can go it alone and maintain control over your successful venture, but if you want your successful business to grow you’re going to need financing. Chances are that your best bet is a “suitable” VC, especially if you have no collateral.
By the way, VCs tend to discard virtually all the investment opportunities offered to them, so if a VC comes knocking do get to finicky, go open your door. Can you imagine where Bill Gates, Pierre Omidyar, Steve Jobs or Michael Dell would be if they didn’t?
Think about it…
EZ the VC
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