Samstag, 4. April 2009

"surviving after investment", 6th and final part of the series "six steps to venture capital"

a successful venture capital investment into a start.up is a big step. having taken this hurdle, it is all now about staying in the game through fulfillment and transparency.

this is the final and sixth step in the series about approaching venture capital, where the systematic approach to acquire venture capital for a is discussed.

after the motivation got sorted out in step 1, the a-b list of potential investors in part 2 (part 2.1, part 2.2) got filled. the battleground was prepared in step 3, and how to approach venture capital in part 4 (part 4.1, part 4.2). the art of negotiating was the focus of part five (part 5.1, part 5.2). finally now it is all about surviving after the investment.

the entrepreneur has to be prepared to fulfil what he promised when searching for investors. the ultimate consequence of not doing so is simple: losing her job and/or the shares in company.
under-performance in revenues, product delivery and cost discipline lead to additional cash requirements, speaking vc investments. such a „down round“ (lower valuation then in the first round) is mainly done by the first investor. only some survive this without changes in management and none without the founders loosing substantial shares.

this in mind, a less ambitious company valuation and reachable key metrics (revenues, expenses, cash flow) can lead to a more desirable outcome for the founders already in the mid-term. in vc-language: increase in company value compared to the investment date.

being a start.up, it is evident that not all goals aimed for or promised get reached. ultimately the investor always finds out. many think they do not - but they always do. from customers, unsatisfied employees and latest when the company runs out of cash.

rather then „performing“ in board meetings transparency is key for survival. no investor, no advisory board member shall ever get surprised in a board meeting (link sun tzu). setting up a three to four week „one-pager“ reporting schema, outlining the good and the bad is one way. involving the investor in a „srum“ like company development process another. demanding input and such giving responsibility to the investor is crucial.

through fulfilment and transparency the so called „shit meeting“ can be avoided. this is the first meeting between investors and start.up after the investment, when the difference between the investment story presented and the reality come to the surface.

recommendation: 1) only promise what can be fulfilled, 2) fulfil what got promised and 3) always be transparent.

this „six steps to venture capital“ series is a guideline on how to get investor on board. every start.up is different, no product, market, investor or founder is alike.
it needs a compelling business opportunity and a thriving start.up team combined with a structured approach and some luck. then venture capital investments are just another task to work on.

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