10 Fundraising Tips from the VC Perspective

Filing 2016 Taxes in 2017 Every Date You Need to Get Ahead of 2016 Business Taxes Taxes are difficult and time-consuming. Taking the time to build a comprehensive, year-round strategy will help you to stay ahead of the chaotic mess that taxes can be. Plus, avoiding penalties and maximizing deductions means more money to invest in your business. Whether you’re bootstrapping your business, launching through an incubator, or seeking help from a VC or angel investor, it’s not an easy to raise money for a startup.

“The most consistent bit of feedback I hear from founders about positive incubator experiences is their coaches forced them to prioritize, focus, and move faster, ” said Tomasz Tunguz, venture capitalist at Redpoint. “Plus, the notion of a demo day creates an auction to help with fundraising. For many founders, those two benefits can be quite valuable.”

Venture capitalists (VCs) work with startups and entrepreneurs every day to launch businesses. There’s no perfect blueprint to build a startup, but experts like Tunguz and these 10 VCs can provide wisdom for entrepreneurs seeking funding. As inDinero’s CEO and Co- Founder Jessica Mah says, “if you haven’t done something yourself before, always find and listen to someone who has—there’s no better way to find your next mentor.”

Peter Fenton is a powerhouse – he’s a the big winners, they usually started with very little capital and General Partner at Benchmark Capital very focused offerings. That’s particularly true in consumer and Chairman of the Board at New Relic. Internet: Google (GOOG) began as just page-ranked search, He also sits on the board at Twitter, Yahoo! (YHOO) was a very focused directory of the Web, and Yelp, and Zendesk, among others. In eBay was really winning in core collectibles. They did just one an interview with Bloomberg, Fenton thing extraordinarily well – better than anyone in the world.” discusses the importance of focus.

© Peter Fenton, Wikipedia “Focus is imperative in a young “When you have more money, you’re company’s life – I think more of our companies die from more likely to hire more people who can lack of focus than any other single mistake. Something I’m do more things that can mask over the concerned about, that I’ve picked up on in the past two years, is the perception that it’s easier to early-stage round today, fact that you’re not being successful in because there are more positive outcomes than there were in, your core. You have breadth taking say, 2003 and 2004. I think it’s leading to an erosion of the idea over depth.” of winning over a core before you expand your horizons.” Think about what you set out to do. Where did your idea come “Venture people want to back big ideas and big markets that from? Try to narrow your focus on solving a specific problem, will lead to big companies, but when you go back and look at so you have a distinct offering and limited distractions.

Fred Wilson is the co-founder of Union Square Ventures, a VC firm that invested in Twitter, Tumblr, Foursquare, Zynga, Kickstarter, and 10gen. He is also an avid blogger. In a Business Insider interview, Wilson explains why getting too much funding can hurt a startup.

“I think there are some instances where you need a lot of capital to execute a business plan, but in many cases it’s not true. But because lots of capital is available, the company takes on the capital and then that ends up resulting in no constraints on decision-making, and so a company decides to do five things instead of one, and they do five things poorly instead of one thing well.”

Raising a lot of money can distract you rather than focusing on your core idea. Before you raise funds, set up a funding lifecycle that aligns company milestones to the amount of money you need to raise.

Jefferson Graham from USA Today spoke with Chris Sacca about startup investments. During the interview, Chris says, “Storytelling is at the cornerstone of everything we do: raising money, hiring, press.” Silvia Li Sam attended the session and summarized his advice on her blog:

“Sell yourself, sell your product to the press, sell your vision to investors, employees, and most importantly, to Photo: © Adam Rose, ABC your customers.”

After getting his start founding multiple groundbreaking She continues, “Coming from a lawyer dad and a comedian Google initiatives, Chris Sacca became an accomplished brother, Chris knows how to tell a story; it’s in his blood.” venture investor, private equity principal, company advisor, Telling any story—especially the story of your company— entrepreneur, and cowboy shirt connoisseur. He manages a in a way that leaves a lasting impression takes time portfolio of over eighty consumer web, mobile, and wireless and fine-tuning. Draft and refine your product pitch tech startups through his holding company, Lowercase and vision before you get in front of investors. Capital. On a live podcast with JibJab Studios, Chris and

Josh Kopelman is a founding partner at First Round Capital, a seed-stage technology venture fund. Josh has been an active entrepreneur and investor in online businesses since the inception of the internet and has provided a wealth of advice over the years. VentureApp shared advice solicited from a number of VCs including this from Kopelman:

“Have a very clear plan and budget for your seed round. Understand the milestones you need to hit for an A round and make sure you have more than enough runway to get there.”

Do your due diligence before meeting with investors to learn from other businesses in the same industry. Find out what worked for them and what didn’t work at growth milestones.

CopyrightPhoto: © Wharton © inDinero Alumni | www.indinero.com Magazine 6 No. 5: Meet Your Market For a successful launch, product-market fit is a prerequisite.

Steve Anderson of Baseline Ventures has invested in more than launch, they’re just an idea. So getting product market fit is 90 companies (including Instagram) from a seed stage. He’s the most important goal of the round. My goal as an investor helped more than 30 companies through a profitable exit for is to make sure there’s enough financing to give companies both the founder and time to do that, a year to 18 months. The worst scenario is to investor. Steve spoke try to raise more money when you haven’t achieved that goal.” with Business Insider When you first start, your job is to live and breathe and shared why it’s your idea. Although you already understand how your important not to raise product solves problems for a specific audience, you more money until need the market to understand and validate it. you’re sure you have a product-market fit. Before you scale investment, make sure “What are the you’ve collected concrete research on goals for [follow-on rounds] of financing? market size, demand, and your product’s ...Generally value proposition. speaking, most of It’s all about identifying a demand that exists—at least my investments to some degree—before you raise funds to supply it. Photo: © Timothy Archibald, Forbes are pre-product

Bill Gurley is an influential venture capitalist at Benchmark Capital who invested in Uber, OpenTable, and Zillow. He recently posted a 5,700 word essay on his blog warning startups to beware of dirty fundraising terms.

“These terms can cleverly fool the inexperienced operator, because they are able to ‘meet the ask’ with respect to cover valuation, and the accepting founder does not realize the carnage that will come down the road,” Gurley writes.

“Taking a terms-laden deal is like starting the clock on a time bomb. Your only option is to hit the IPO window as fast as possible. Otherwise, the terms will eat you alive.”

If you’re raising an incremental round, consider the terms associated and how it might impact your company’s future.

Jim Breyer of Breyer “Raise money now,” he told Bloomberg. Capital invested a little over $12 million “I encourage our best companies, which in Facebook in 2005 believe they don’t need to raise cash, to and cashed out when the company do so opportunistically. A company is went public in 2012 better off with 18 months of cash netting $6 billion. in the bank.” He’s also served on the Board of At first glance, this advice contradicts Fred Directors for Wal- Wilson’s advice to minimize funding. Mart, 21st Century But it’s important to remember that the best valuation and Fox and Etsy. Breyer funding terms come when you aren’t in desperate need for shared advice money. If your company is healthy, you’ll be able to court for tech startups investors willing to negotiate to be part of your business. in regards to the This strategy can give you flexibility as things change. volatile market.

Photo: © Bkahvedzic, Wikipedia

and ‘evolve’ to an ever-changing environment. Would-be entrepreneurs are told that nothing can be known in advance: we’re supposed to listen to what customers say they want, make nothing more than a ‘minimum viable product,’ and iterate our way to success. But leanness is a methodology, not a goal. Making small changes to things that already exist might lead you to a local maximum, but it won’t help you find the global maximum. You could build the best version of an app that lets people order toilet paper from their iPhone. But

Peter Thiel is a venture capitalist and an entrepreneur “A company is the strangest place of all for an in his own right. In his book, Zero to One: Notes on indefinite optimist: why should you expect your own Startups, or How to Build the Future, Peter weighed in business to succeed without a plan to make it happen? on the idea of trying to launch the ‘lean startup’ and the Darwinism may be a fine theory in other contexts, importance of having a plan based on intelligent design: but in startups, intelligent design works best.”

“Even in engineering-driven Silicon Valley, the buzzwords of Investing in a company always comes with risk. Investors will the moment call for building a ‘lean startup’ that can ‘adapt’ want to understand the bold plan behind your business.

Marc Andreessen, Co-founder of Netscape, has invested and influenced big name social media and search engine platforms like Facebook, Instagram, Buzzfeed and Pinterest. Bloomberg TV’s Emily Chang interviewed him during 2014’s Dreamforce conference.

Andreessen explains, “If you’re a new startup and spending $50 million a quarter, maybe switch to regular water instead of coconut water. We call it the ‘edifice complex.’

“As soon as a company builds their fancy new headquarters they immediately fall off a cliff and collapse. It’s peak ego-building, something that doesn’t work.”

Think frugally. To prevent the post-fundraise collapse, set a strict budget that ties expenses to revenue generation.

CopyrightPhoto: © Joe © inDinero Pugliese, | The www.indinero.com New Yorker 11 No. 10: Choose Your Advice Pick advisors and mentors based on experience over perceived success.

Paul Jones is a serial venture-capital backed entrepreneur, angel “They might be a great person to leverage for money, but investor and co-founder of a $26 million early stage VC fund. In they’re probably not going to have a lot to tell you about the an interview with Forbes, Jones talked about how a mentor or realities of building your high-tech business on a shoestring.” counselor is one of the smartest players you can find to increase Later in the interview, Jones explains why an investor should your chances of funding and build a successful company. also serve as an advisor. “It’s much more significant for a “Get counsel and be very careful about who it is. startup entrepreneur to work with super angels and accelerator Not to confuse the fact that someone who can run type things where you get a little bit of money and get some real a billion-dollar corporation does not necessarily valuable help. It sets you up for sophisticated investments. mean they’re a good adviser for your startup. “There are a lot of good venture capitalists out there and they really do add more than money to the equation. If “So really find people who have you’re an entrepreneur who hasn’t done it before; I think the experience and wisdom in the trenches discipline is having an outsider who knows something about of the kind of thing you’re trying to do. the business and investment climate. It’s a good thing.” The CEO of some Fortune 500 company In the world of fundraising, ideas are like sports cars— is not a great person to be an adviser. everyone investor has one. Make sure you align yourself with people that bring advice from direct experience, not just a fancy title and unrelated success.

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About inDinero Founded in 2009, inDinero is the leading financial software and services solution for startups and small businesses to automate accounting, bookkeeping and tax preparation. Working with over 750 organizations across the United States, inDinero is changing how business owners run operations. Headquartered in San Francisco, California, inDinero has over 150 employees at offices across the United States and in the Philippines. Visit inDinero.com or call 855-463-4637 for more information.