 |
 |
 |
|
02.09.10 How To Gain Investing Capital  By Dharmesh ShahAs the market improves, my guess is that many of you will likely be thinking about raising funding for your company. With my latest startup, I'm now a venture-backed startup founder (I've raised $33 million in three rounds of capital for my marketing software company). So, I've got some direct experience with the process. Several of the companies I'm an angel investor in or otherwise involved with have also been in the fund-raising process. So, along the way, I've learned a few things, and I'd like to share them with you. There's already lots of great content on the web about raising capital and understandingdeal terms. My favorite is the content on Venture Hacks (a must read, if you're raising capital). But, I figured it wouldn't hurt to share some of the "lessons learned" from my own experiences. Some of these you'veprobably heard before, but one or two will likely be new to you. Insights From Raising $33 Million In Venture Capital 1. Get the first round right: The terms of your Series A deal are very important. Not just because of the impact on that first round, but because many of those same terms are likely to carry through to future rounds. It's tempting to concede on some important terms because you're thinking "well, that's just life…and it doesn't seem like that big of a deal." Try to resist that temptation. One of the things I've learned is that when negotiating the term-sheet for your Series B or Series C round, the "base" terms (the starting point of negotiations) is whatever terms were in your Series A. So, if you agree to some non-favorable terms on the "A"round, you're not just paying the price for that concession in this round, you're likely going to continue to pay in future rounds as well. Factor that in. 2. Avoid valuation infatuation: Entrepreneurs often become obsessed with the pre-money valuation on the deal. Though this is certainly an important element of the transaction there are other factors at play that have significant impact on the raw direct economics of the transaction including the employee stock option pool (and who pays for it). If you get close to finalizing a deal, it is imperative that you have a spreadsheet that helps you understand the economics of the deal. You should read Jeff Bussgang's article on the topic. It is worth your time. 3. Raise more than you need: Regardless of how much capital you raise, chances are, you're going to have wished you raised a little bit more (or perhaps even a lot more). Within reason, if you have access to capital and the terms are decent, raise more than you think you need. Don't get hung up on dilution. To help you overcome this fear of too much dilution, build yourself a simple spreadsheet that models the actual financial impact to your person bottom-line based on various outcome scenarios. What you will likely find is that if things go really well and your startup is the spectacular success it deserves to be, the extra dilution is not going to change things all that much. And, if things go really poorly, it won't matter either (because those extra common shares aren't going to make you money). You might be thinking "I'll just raise the additional capital in a future round, at a much higher valuation" - which is somewhat right. But, what you should keep in mind is the transactional cost of the additional round. Raising a venture-round is a very time consuming process and when your bank balance is getting low, you're going to really want to just keep working on the business instead of shifting focus back to the funding game. In short: If you have the ability to raise a slightly larger round, and the terms are reasoanble, you should probably go ahead and take the extra money. Continue reading this article. About the Author: Dharmesh Shah is a serial software entrepreneur. He is the author of the widely read startup blog OnStartups.com which focuses on advice and ideas for startup founders and management teams. Dharmesh is also the co-founder of HubSpot.com, a software company building applications that help small businesses transform their website into a marketing machine. |
||||||||
|
| ||||||||||||||||
|
-- InvestNewz is an iEntry,
Inc. publication -- iEntry, Inc. 2549 Richmond Rd. Lexington KY, 40509 2010 iEntry, Inc. All Rights Reserved Privacy Policy Legal archives | advertising info | news headlines | free newsletters | comments/feedback | submit article |
