Advice from the Pros
A collection of free resources for entrepreneurs and advice for start-ups.
How Venture Capital Works
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