The Fundable Startup Overview

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.