Leading a start up can be very tricky. There’s no one way to do it, but there are many wrong ways. Too many founders start by trying to Ray trying to raise capital which almost always ends poorly.
The trick is to find ways to gradually build value and reduce the risk for future investors in your company. This means you need to have a sound understanding of how how value is determined, what activities create value, how risk is measured, and the activities that can reduce risk.
A leader who understands these elements may be able to find a sequence of activities that increases the value and reduces risk to the satisfaction of investors. This is one of the reasons that experienced CEOs often have an advantage.
See the blog on this subject. While VCs lean toward the more complex “disruptive” deals, Angels lean toward somewhat simpler and less capital-intensive deals. Most angel deals are around $1 million. That’s generally too small for venture capitalists, who usually need to put money out in larger bundles, which they sometimes do in a series of “tranches.”
“Bootstrapping” is running your company on little or no cash until either you are able to raise capital on attractive terms or you need money to expand. There are at least three reasons to “bootstrap.”
- You may not be able to raise money so you might as well make as much progress as possible.
- The more progress you can make, the better your chances of getting capital.
- The more progress you can make the higher your valuation is likely to be.
- The longer you bootstrap, the more likely you are to attract more seasoned players to your team.
It’s very difficult for one or two founders with a business plan to raise capital. But if they can build a small team, create a proof of concept, build a product and get a customer, their chances of getting funding increase dramatically.
Not all companies can bootstrap. Some will need capital to get off the launch pad, but most companies — if they get creative — can find ways to make lots of progress without much capital.
Vinod Khosla, a Forbes billionaire and very successful venture capitalist, says he looks for “disruptive” companies. This is probably a good description of the kind of company most VCs seek. “Disruptive” implies game-changing. A disruptive product solves a problem in a completely different way than any other solution. Or it may solve a problem that has not been solved. Disruptive products usually have annual revenue potential in excess of $100 Million, or more, within five years.
The basic idea of “attracting capital” is to present investors with an “offer they can’t refuse.” Professional investors are always looking for good opportunities. Present them with a really good idea, a strong management team, and some initial value that helps reduce risk, and you will have a chance of “attracting” capital instead of begging for it.
I am the person to write this book because:
- I have a unique perspective on the varied world of high-tech startups based on 46 years of experiences as a venture capitalist, venture capital fund manager, angel investor, corporate director and co-founder of multiple companies.
- I know from personal experience what investors are looking for.
- I have hired and replaced multiple startup company CEOs.
- I have implemented the “attract capital” strategy successfully, either directly or indirectly, in eight companies.
- My conclusions are based on 46 years of experience in working with high-tech startups.
- I have served on over 30 boards of directors.
I have been a venture capital fund manager and venture capitalist. I am currently a private investor and the founder and President of the Venture Management Co., a firm that provides capital and assistance to high tech companies. My other activities include:
- Founder and organizer of Monday Club, an 850-member group that provides funding guidance and mentoring to two startup companies monthly (MondayClub.com). Every Monday Club presenter receives written feedback on a form I designed. Monday Club has helped many startup companies obtain funding. (See examples below.)
- Co-founder, Tech Coast Angels, one of the largest angel investor groups in the U.S. https://www.techcoastangels.com/
- Founding Chairman and CEO, NovaDigm Therapeutics (http://www.novadigm.net/), DRC Computer (http://www.drccomputer.com/), and PulSentry, Inc.
- Director of over 30 high-tech companies.
In 1983, I was the founder and manager of 3i Ventures, California, a successful venture capital fund that invested $80 Million in 60 startup companies and produced 19 public companies and top quartile returns.
In 1999, I was selected “Mentor/Angel of the Year” by the American Electronics Association in Orange County. In 2002, I was named “Director of the Year for Early Stage Companies” by the Forum for Corporate Directors. Before 1983, I held senior management positions with Xerox, CSC, and TRW. He holds a Ph.D. in Computer Sciences from Carnegie-Mellon University.
Most blogs and books about startup companies are focused around “How to be a CEO”. The Fundable Startup takes a completely different approach. It argues, “Unless you are a seasoned CEO, you should find a fundable CEO, instead of trying to be the leader yourself.”
The Fundable Startup makes the case that VCs prefer to back CEOs with previous successes and that it is not possible to compress the 15-20 years of experience needed to create a seasoned CEO. So a startup company’s best chance of getting funded is to retain a CEO with a history of success.
The methods outlined in The Fundable Startup have been proven to work. The author has successfully implemented the process successfully in multiple companies over many years. Moreover, the author has observed the experience of hundreds of founders that have tried to lead their own companies without success.