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.” Copyright © inDinero | www.indinero.com 2 No. 1: Set a Core Focus Focus on solving one problem that you can win. 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. Copyright © inDinero | www.indinero.com 3 No. 2: Minimize Funding Only take what you need when you need it. 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. Copyright © inDinero | www.indinero.com Photo: © Lucas Jackson, REUTERS 4 No. 3: Be a Storyteller You’ve only got one chance to share your vision, so tell a riveting story. 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 Copyright © inDinero | www.indinero.com 5 No. 4: Timing Matters Be realistic about how much money you’ll need at each growth phase to hit your goals. 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 Copyright © inDinero | www.indinero.com 7 No. 6: Terms & Conditions Apply Look out for predatory investors that leverage startup failure to their advantage. 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. Copyright © inDinero | www.indinero.com Photo: © Brian Ach, Getty8 Images No. 7: “Raise Money Now” When raised opportunistically, money provides flexibility. 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.