Advice from the Pros

A collection of free resources for entrepreneurs and advice for start-ups.


How Venture Capital Works

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What’s in this interview:

Funding Criteria

  • Critical factors in deciding on deals are management, market, and momentum.
  • Momentum has to do with measurable progress you’re making.

Common Mistakes when Fundraising

  • Many founders give away too much equity.
  • Equity is your most valuable asset. Conserve it early.
  • Be very selective when picking your investor. Do you own due diligence!

How to Find a Venture Capitalist

  • The best way to connect with a VC is through another entrepreneur, an accountant, or a lawyer.
  • Don’t try to send out dozens of pitches to info@firm.
  • Get to know VCs over a long period of time (sometimes a year or more) by allowing them to track your progress before you actually raise money.

Negotiating a Deal

  • There are three main investment requirements for venture capitals: 1) price, 2) the right to continue to participate, and 3) the preference.
  • Preference could be that when there’s a sale, that the VC firm gets its money first.
  • A new deal often takes 30 days to close from the time a term sheet is settled until a closing takes place.

Determining Company Valuation

  • During the early stages of a startup, valuation is much more art than science.
  • At the seed stage the biggest driver is making sure you get the ownership right for both sides.
  • As the company grows, and it has revenues, and it’s maybe starting to near break even, then it becomes much more of a math game, and you can run comparables, discounted cash flows, and other financial modeling techniques to determine valuation.

And more. Including:

  • Value-added benefits of partnering with VCs
  • Controls lost when you raise VC
  • Attributes of VC-ready entrepreneurs
  • How VCs are compensated

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