Benjamin Kuo’s Blog

I’ve been quite interested to speak to a number of entrepreneurs recently, who have either recently raised some angel or venture capital, or are in the process of raising some money. They’ve all told me something — which (given the number of people looking for funding, and the correspondingly smaller number of sources of capital) isn’t very surprising: it takes time. A lot of time. A lot more time than you’d think, or want.

One startup I spoke to — whose principals, although they had lots of experience in their own industry but hadn’t had any experience raising money, and had just started fundraising — asked me if I thought they could get an investor signed next week. The vast majority of (funded) entrepreneurs I talk to had been looking for capital for at least six months to a year, if not more, before they scored their first funding round. I have seldom heard of anyone instantly getting a venture round — if nothing else, because of the time involved in pitching, arranging meetings, followup meetings, due diligence, getting all the legal ducks in a row, etc. etc. etc. Even after you’ve got a term sheet in hand, it may still be a few months until you actually have a check in hand.

Surprisingly, the idea that suddenly a rich investor with a fat checkbook can write you a check, today, is a very common misperception I hear from early entrepreneurs. Too many of them are — frankly — in somewhat desperate situations where they need capital NOW to pay their employees or vendors.

So, what’s my unsolicited advice to entrepreneurs, as it pertains to funding?

1. Assume it’s going to take some time to get funding–if it happens at all — and make sure you structure your business so you’re not desperate if there’s a delay. That means, you probably shouldn’t be hiring that employee before you can afford it, and you should forgo those cool Aeron chairs you saw the other day.
2. Look early, look often — if you are going to have some significant capital needs, you should be looking well before you need it — not the day before. And, make sure you’re constantly networking with sources of capital (angels, venture capitalists, others) before you need it.
3. Get your ducks in a row — especially for those early entrepreneurs, make sure you’ve already engaged with an attorney, have the proper legal structure for your firm, and have an adviser who has helped other companies through funding.  It also means you have to absolutely have the stuff that a venture capitalists or angel will want to see–ie, PowerPoint, financials, etc. –ready in your pocket. Not having all of that in order will just delay (if not kill) your funding.
4. Don’t rely on the timing of your first venture round — if you’ve never done this before, you have to assume that you will have to fund your business out of pocket, from family or friends, or another source until at some time you actually might have something venture fundable.
5. Keep moving forward – if you can, given your business, keep moving forward no matter what. The farther you go with your business — in developing your product, service, or market — the more likely it is you’ll actually get funding. A huge number of companies never get beyond the idea stage because the entrepreneur gets stuck in idea stage, where a company is least likely to find funding.

This entry was posted on Wednesday, April 23rd, 2008 at 8:32 am and is filed under Startups, Venture Capital. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.