which is the right time for 1st round VC after seed capital ?
We have collected the investment from co-founders and a Seed Capital investor, we developed 1.0 versions of our platforms, we got some references, but we need to invest more in development to extend features/product portfolio and enforce business development.
We have scheduled a tentative 1st round of 1.5 M € en Q1'08.
The company has a global focus and it is based in Madrid (Spain).
I ask for advice, should we go faster and anticipate this 1st round to speed up our start-up proccess or it could be better to arrive to VC firms with more references about our technology?
http://www.solaiemes.com
http://solaiemes.blogspot.com
thanks in advance
juan mateu
Good Answers (8)
When you raise your first non-seed round depends on many variables, not the least of which is your current burn rate and the criticality with which you need it. Some basic advice ...
1. Only raise the money (you are going to be giving up a good chunk of your "baby", your company) if you know that you need to
2. Build, build, build. The more value you bring to any round of fundraising the more there will be to raise.
3. When you come to the conclusion that it is time to raise money raise MORE than you need. Do not raise exactly what you need, based on projections, blah blah. Be smart, recognize that you are not psychic and the unforeseen and the undesireable will always happen in change your plan. How much more? Depends on how much of your company you are willing to part with and how much you need to set aside for potential future fund raising, and etc. You want to have enough money to carry you at least a year out (but, again, plan for the worse, you will be happy that you did, and if you are raising another round you wont racing to not run out of money, but have cushion to find the best deal that you are also comfortable with. ;-) )
If you have further start-up questions or beginning a business advice, or consumer product advice, let me know, always looking to help out those starting-up.
Jeremy Horn
Co-founder, SingleFeed
personal email: jeremydhorn@gmail.com
Not an easy one to answer nor easy to balance.
The more proof-of-concept you have, the better. References in Spain is better than only in Madrid, in Europe better than only in Spain, etc.
But don't wait so you are too eager and hungry for the money.
Always remember that VCs are busienss people who requires a high return on investment to succeed. I would not characterize them as greedy given that they loos on most of their investments!
If possible go for investors who has more than just money! If they have done startups themselves then you might get clever money.
Also never say no to more money unless your company is generating lots of cash, which only few startups are able to do.
Try not to be greedy and wait too long hoping for a better evaluation! Always remember that time is not in your favor. The longer you wait for money to expand the business, the more likely it becomes someone else will conguer the market.
Links:
Amish P.
Strategic Innovation
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The more work you can do in the short term, the better off all parties will be. That is to say that you will receive a more favorable valuation and the VCs will see a lower risk profile.
We help pre- and post-funding software, mobile, and web companies develop innovative product offerings. Our firm specializes in developing solutions and deploying product at very early stages of a companies life -- our teams are flexible and enjoy navigating the changing needs of a start-up. By far, the best way to get a favorable deal for your A round is to meet milestones (get work done, product shipped, paying customers, etc).
After all, it is not time but accomplishments and cash need (burn rate possibly) which determine the need for capital and the structure of the VC deal.
best wishes
Amish Parashar
Inventure Global, Inc.
Small Business Outsourcing Made Easy!
Links:
A few rules for taking VC funding:
1. Get the money in the bank before you need it.
2. Take as much as they will give you.
3. Don't focus on your personal share of the company. (If you execute well, a good board of directors will reward you to continue doing it).
4. Focus on how you can increase the chances of company success, above all other considerations, including your own personal gain.
5. Spend the money as if you did not have much left. (Few problems can be solved with money alone).
6. Don't hire expensive people just because you have big money. Hire people who love to do what they do and support them.
7. Make sure every dollar spent is an investment in delivering customer value, directly or indirectly.
8. Spend money on PR, and not a dime on advertising.
9. When a salesperson pulls in a big purchase order, send flowers or Waterford Crystal to their house. If they do it ten times, you do it ten times.
10. Give praise to others for your own achievements.
More on getting funding at the link below...
Best regards.
Liam
Links:
after seed money, what you need is 3 things:
- a working product beyond beta (which you seemingly have as you are 1.0) with plans for 2.0 with technical breakthrough
- a growing customer portfolio and some positive references + proven commercial perspectives
- a revised business plan showing profitability at an horizon of 18-24 months
Links:
Juan,
It is quite normal for tech entrepreneurs to feel the need to keep investing their product – every tech company in the world has an endless list of features and extensions they ‘must’ add at any given time – as a former tech entrepreneur I have been in that situation myself many times as have all of my start-up clients.
If you don’t feel your 1.0 versions can stand the test of the market, just think about Microsoft; they do not exactly have a reputation for developing quality software, yet they are the most powerful software company in the world, by virtue of producing something just “good enough” and relying on their marketing power to make it a success.
My advice is this; investors will reward you to a much greater extent for any success you have in signing up clients than any feature you can add to you solution between now and Q1’08, so if I were in your shoes I would spend all my available resources on PR and sales for the 1.0 versions.
A final note: A very well respected VC investor recently told me that the number one criteria for him when evaluating business plans, was whether he could see a $100M potential in the product. I noticed on your website that you are offering three different products, something which might ‘confuse’ investors when they are trying to value your company. From an investor perspective, the preference is to see a focused organization putting all their resources behind the development of one unique idea into a killer application in one particular market – that’s how investors can clearly see value in you venture.
Now, I don’t have an in-depth understanding of the field you are operating in so I might be wrong, but on a general basis I would take a deep look at your product portfolio and decide which product is going to be your spearhead as you move forward and put all my resources behind that single product going forward both in terms of development and sales.
Good luck,
Jon
Juan,
There is no such thing as a “right time” in absolute terms. When raising money you have to think that you are selling a piece of the business and relinquishing some control. To maximize the percentage of the business you are going to keep, you have to maximize the “pre money” valuation. You do this by having a proven product, a proven market and existing sales.
Good products bring good references. Think more in terms of ensuring that the basic functionality of what you have works well, only then add features. Do not burn money adding bells and whistles at the expense of stability of the existing platform; you do not want to end up with a feature-rich product that clients don’t believe will work.
If you have a proven and stable platform and solid references from customers, VC’s will be willing to put money in. You will have proven that you are not only an “idea guy”, but also capable of executing.
Take your worst case burn scenario to determine how much money you will need…and then raise an even larger amount.
Oscar Ignacio Rodríguez
CFO, WorldTelemetry, Inc
Feel free to shoot me an email at oscar.i.rodriguez@gmail.com
John B.
Managing Director at Vincio
Best Answers in: Starting Up (2), Venture Capital and Private Equity (1), Staffing and Recruiting (1), Small Business (1), Wireless (1)
Juan:
People have made many good suggestions in previous posts on this question, so I'll just add two brief comments.
1) "Validate the technology in the market." In this new era of venture capital (where less risk is better and less reward than before is tolerable), it will be very difficult to raise an initial venture capital round unless you have achieved this statement. The simplest way to validate the technology in the market is to win an initial customer. Without a customer, the best way to validate the technology in the market is to win positive reviews from potential customers - "yes, we would buy this product when it is available; we would use it to drive new value in our products." VCs will invest when they can talk to potential users who say "yes, I would buy this when it's available."
2) Think carefully about whether you really need to take in venture capital. You will - without exception - give up control of your company to the venture capital investment group. This may or may not be a bad thing, but it is reality. If you are prepared to change aspects of your goals for your company in accommodating the needs of your venture capital syndicate, then by all means raise 12-18 months of cash burn. However, if you are a CEO who wants independence in running his company, cut cash burn to a minimum, delay busdev, put off feature extensions in the product, and use version 1.0 to raise money from potential customers.
Juan, best of luck with your project.
jbrewer
