Dienstag, 7. Oktober 2008

six steps to venture capital: part 1

recently established self financed start.ups have tight cash restrictions. sooner then later, further financing will become a main issue. in order to approach the financing process in a sustainable and therefore successful way, founders shall consider the following six steps.

1) funding motivation
2) fund selection (part 2.1, part 2.2)
3) preparing the battleground
4) approach (part 4.1, part 4.2)
5) negotiate (part 5.1, part 5.2)
6) survive after investment

each single step will be discussed in upcoming posts and brief recommendations will be given about how to handle them best. let’s start with number one:

1) funding motivation

before getting on the roller coaster-one way road to venture capital (vc), start.ups should take a short break and think about the motivation to get risk capital for early stage companies. why looking for vc money, besides the pure cash-requirements?

when the initial enthusiasm of a start.up is gone, cash is running out in some months, bug-fix lists are growing, market feedback is slow and long nights start to take their toll it is time to discuss some real basics. where should the company go? developers sometimes loose motivation, after the proofed they can do it - not everyone likes to upscale until finally becoming a legacy application. marketers and sales people might struggle hard to find first and paying customers, after the initial marketing bravo wore off.

there are three main paths after all: a) full steam up the hill or into the wall, b) bootstrap, bootstrap & bootstrap or c) stop it right there.

in a situation like this, and every start.up goes through that now or then, it is time for the whole team to sit down and discuss. at the end of the process one of the paths will be taken.

those who do not fully support the decision better leave then, so the company can move ahead united and focused. there is nothing worse then a company funded with millions of vc money, which actually does not really want to grow the fastest possible and (in reality) hand over control to the investors. and this is true for the founders, co-workers, customers and the investors.

- match growing ambitions with sources of fund: vc for j-curve, bootstrap for the rest.
- make sure all the founders and the core team support the direction of the company. those who do not, should leave the company. make a written note of the meeting and let everyone sign it.

having cleared the basic strategy of the company's direction strongly determines the next step in acquiring vc money. assuming that risk capital is the right choice, then the next action point is fund selection. this will be discussed in part 2 of ”six steps to venture capital".