I know, you just want me to show you the scorecard and associated secret formula investors use to decide a supposedly “fair” valuation for your company. Unfortunately, you are only allowed access to that information once you’ve become an accredited investor, pass the extremely difficult valuation certification test and finally swear yourself to secrecy, with an implanted microchip under your skin for enforcement. Haven’t you wondered why investors act so sketchy when you try to get them to explain how they came up with a proposed valuation for your company?
With as little as it costs to get a software startup off the ground these days, many entrepreneurs start off as what we call “bootstrappers” rather than fundraisers. There’s nothing wrong with that approach but staying in the bootstrapped mode for too long can carry some consequences. This article explores that further.
Not much different than the famous chasm described in Geoffrey Moore’s book “Crossing the Chasm”, funding your startup venture over time also has a chasm. This fundraising chasm doesn’t trip up all startups but that might just be due to luck. Explore this further with me to better navigate the chasm in such a way that it doesn’t suck you into the abyss.
When I ask entrepreneurs what their most valuable resource is, I ALWAYS get one of two responses: money (aka – funding, cash) or people. And it’s hard to argue about the relative importance of these two things. But those resources are replaceable. There’s another resource that isn’t, and it’s Time. Time is an entrepreneur’s most valuable resource and is the subject of this article. Given the various other tools and resources you have, how can you maximize time? Let’s explore further.
Almost no investor wants to be the “first check written” for your round of funding. This makes total sense if you think about it from their perspective. If you don’t secure any other investors, they are in big trouble because you needed a certain amount of money to remain viable and now their investment is already extremely risky. For this reason, until you actually have money in the bank from a few investors you will find most interested investors dragging their heels (artificially delaying things). This article describes how you can use verbal commitments as a crucial tool to shake things loose, get some money in the bank and trigger needed fundraising momentum.
Here’s a scenario I commonly see. A startup raises $1M in total seed funding to turn their MVP into a real product and figure out a profitable and scalable customer acquisition model. All goes well over the coming 12 months as they reach $80K in MRR while also growing the team to 10 employees. They find themselves setting plans for a Series A round of funding and predict the process will be similar to their seed round but just with venture funds as the primary target and larger check sizes. After eight weeks and zero success, they approach someone like me for advice and the reaction they get is some flavor of this: “a Series A is not just a larger version of a seed round”. This article dives deeper into what exactly that statement means.
I didn’t invent this quote (can’t remember where I heard it) but what a great one to help remember that with most business-related transactions, price is definitely not the only factor. Three such transaction types relate to the things I commonly write about on this site:
- Fundraising (valuation)
- Technology licensing (royalty or license fee)
- Acquisition (price tag)
In this article I provide insights into possible terms for each type of transaction that could dramatically change the value equation.