Karsten Strauss, Forbes Staff
A journalist covering entrepreneurs, technology & business.
You’re a young company with an interesting product
in development. You’ve watched a few startups rise to glory, watched
others crash and burn. Undeterred, you’re sure you can make. All you
need is a bit of cash to get on a growth track and inch closer to
profitability and success.
But how do you go out and get that growth capital?You could bootstrap it by cutting your expenditures down to almost zero, living on dehydrated noodles and doing laundry at mom’s place, but that will only go so far. There’s always crowdfunding, but to get any attention doing that you need a seriously unique or wacky idea like or a shake that replaces food or a film about Nazis living on the moon.
There’s always a bank loan, but even if you can get
it that’s just money with interest attached and it would be great to
get cash plus contacts and guidance. Venture capital is always an option.
“I see a healthy venture capital market for startups,” said Charles River Ventures’ George Zachary, who led his firm’s investment in Yammer (acquired by Microsoft MSFT -0.14% for $1.2 bln. last year). “I don’t see any shortage in venture investors wanting to fund startups.”
Maybe venture capital or angel funding is the way to go. But how do you make the bigwigs at a venture capital firm deign to cut you a check?
Here are some tips that may help you fund your enterprise:
1 – Disrupt Something
Getting in between an established competitor and
its cash cow is tough, but lucrative when you can pull it off.
Disruptive products and technology can help your company eat the lunch
of the bigger players in your space and if you can convince an investor
that your business model can accomplish that – even a little bit – that
investor will see the rewards and be more willing to help you grow your
idea.
“We’re looking for truly non-linear companies that
disrupt large B-to-C and B-to-B markets,” says Jason D. Whitmire, a
partner with Earlybird Venture Capital. “Usually these teams have to
have a very strong (tech) DNA. That means technology at their heart.
Ideally they’re all very techy people. Increasingly, I think, businesses
that build engagement or networks leading to a high degree of
defensibility are extremely attractive.”
2 – Have A Touch Of Experience
It’s not necessarily expected for startups to be
filled with battle-hardened business veterans, but having a couple on
your team that have seen a funding round or two at other young companies
definitely doesn’t hurt. Venture capital firms feel
better if they know they’re not handing a wad of money to a roster of
newbies.
“Guys and gals in the 20s produce some phenomenal stuff but
typically we’ve seen that out hold periods – the lengths that a venture
capital company sits on an investment – are dramatically shortened with
one or two people who have played the game before,” Whitmire said.
Zachary agrees: “These people know that this is not
necessarily going to be easy all of the time and to expect the need to
continuously stay focused on the reality of the business, on the
day-to-day metrics and realizing that there’s usually a winner that
takes all and wins most of the valuation in a market space and that
being number two or three is really not a great place to be.”
3 – Be Efficient, If Not Profitable
Profitability is milestone you won’t forget and a
major sign that your young company is on the right track. But it is not
necessary to attract venture money or angel interest. In fact, most
investors would not even expect you to be profitable if you operate in
certain spaces.
You may be losing money but remember that how you
deal with the money you are making can show how cost conscientious and
efficient you are. Those spending tendencies and professionalism will
send a message to those contemplating an investment in your startup. Growth
is paramount and having a burn rate of below $200K per month for a
company of 12 emplooyees or less is compelling. “That’s gonna be the
sweet spot,”
Whitmire said. “Once we’ve figured out how the engine works
– figured out what the return is for every marketing and sales dollar
spent – that’s where you can pump it up and go a half million burn a
month. As long you’re truly growing.”
Read Page 2 Here
This is a good common sense Blog. Very helpful to one who is just finding the resources about this part. It will certainly help educate me. I glad to read it and thanks for sharing it...
ReplyDeletepayroll darlington