This post was originally published on Thoughts on Tech Startups and Venture Capital
We’ve written about the slowdown back in August of 2015. Lack of IPOs and liquidity in the later stage has a reverse domino effect on the whole investment ecosystem. The bitter election and uncertainty around the US and world economics and the future aren’t helping either.
As a result, we are seeing a significant slowdown and reluctance in seed investing. There are fewer angel investors, and those who do invest take much longer and invest much less. Similarly, Micro VCs are more cautious and take a lot longer to make decisions. What used to be two or three meetings to a check, now is five or six meetings to a MAYBE.
This market is not likely to improve quickly. Early 2017, and likely all of 2017 may continue to be slow and difficult for seed fundraising.
Here are some practical things founders can do to be successful in this new environment.
1. Raise Less Capital
Start by thinking about how you can do more with less.
If you previously planned to raise $1MM, can you revise your plan to accomplish the same with $700K? Most of the time, founders ask for arbitrary round numbers like $1MM or $2MM instead of the actual amount of capital needed to achieve specific milestones.
Think about what can you cut. Work to re-budget. Hire less people. Spend a little bit less on marketing. Get rid of your office space. Try to get hosting credits from Amazon or Digital Ocean.
Be creative and stingy. Spend time really polishing your financial model, and forecast, so that you can confidently tell investors why you are only raising $700K and why you know you can achieve the necessary milestones with less capital.
2. Lower Your Valuation
Very few things upset founders more than a low cap or pre-money valuation. Whenever most founders look at a term sheet, the only important term they see is valuation.
In reality, many other terms matter, and post-money valuation actually matters a lot more than pre-money valuation, because thats the true indicator of how much dilution the founders are going to have.
It is important for founders to realize that in a slow market, investors want a deal.
When there is plenty of capital to go around, founders ask for high valuations. When there is little capital to go around, investors push for low valuations. Investors want a deal.
Instead of being stuck on the numbers, lower the valuation and get your round done.
You thought you were going to raise capital on $5MM cap but investors want $3MM cap? Fine, agree to the deal. Yes, this is a lot more dilution, but you’d rather raise quickly on a lower valuation that not raise at all.
More importantly, if you crush it, there will be an opportunity for you to make up the dilution in the future financings. A year from now, when you may need to raise capital again, your numbers will be stronger and there is a chance that the market will be better as well. At that time you will be in a position to ask for better terms and you can compensate for the dilution you have to agree to now.
Simply put, you can get diluted 25 percent now and 15 percent later, or 15 percent now and 25 percent later and it is the same amount of dilution.
Sure, ideally, founders want less dilution now and later, but this is not real world, that’s not how markets work, and that’s not what investors want. Recognize the reality, give the investors a deal, and close your round faster. Also, raise less capital and your dilution will be smaller.
3. Meet More QUALIFIED Investors
We tell Techstars founders all the time – when in doubt, add more to the top of the funnel. This is true for both sales and for raising capital.
In the slow market, the shape of your fundraising funnel changes in two ways.
First, it gets taller. It will take you more meetings and more time with every single investor. What used to take two to three meetings to a check, may now take five to six. Be prepared and ask what are the steps, how long the process will take and what to expect.
Secondly, a lot more people will say NO in every stage, so it is important to triple the top of your investor funnel.
Fundraising, like sales, is a numbers game. You need to meet a lot of investors to get funding. Most say NO, because seed stage companies are super risky. Just be ready to get a lot of NOs, and keep finding new investors to talk to.
While it is important to talk to a lot of investors, this doesn’t mean you need to talk to every investor out there. Quite the opposite. You can only get funding from a qualified investor – someone who is interested in your space, someone who has capital to invest, someone who hasn’t backed your competitor. Research the investors to make sure they are qualified. Do not waste your time by trying to talk to every single investor out there.
4. Become Profitable
In the world enamored with venture capital, we rarely talk about profitability.
Yet, profitability for a startup is the most liberating thing that can happen. When you become profitable, you no longer depend on raising external capital.
Can you become profitable by closing a few more contracts, cutting expenses, and slowing down your growth? If you can, then this is the time to seriously consider doing it. If you become profitable you will be able to control your destiny.
A company that’s profitable is also more attractive to investors. It is less risky and it’s clear that the management team will spend the money responsibly.
Even if you aren’t profitable now, make profitability your next milestone. Instead of telling investors you will need to raise more money in 12 months, build a plan that gets you to profitability.
5. Get MORE Customers
In general, early stage investors are reluctant to invest because the companies don’t have enough traction. Real traction is revenue and paying customers. Get obsessed with sales and getting customers, not just fundraising.
Every single paying customer gets you closer to profitability, and to ultimate independence.
The more customers you get, the more convinced you are about the business and the faster investor dollars will come. Become your own toughest critic, leave no stone unturned and ask all the questions investors will ask.
Nothing excites investors more than actual paying customers and a hockey stick growth in customers and revenue. Get to revenue, grow the revenue and your chances of fundraising will go up.
6. Be MORE Inspirational
In a slower environment the bar for everything is higher. Not only do investors expect a better deal and more customers, they will also expect an inspirational vision and a bigger story.
Investors are naturally attracted to founders who have strong founder-market fit, see the future and have the ability to make it happen.
There reason that investors are attracted to artful story telling is because they know that great CEOs and founders have to inspire customers, employees, new investors and the whole world.
Founders who have a clear vision are also very resilient – they know where they are going, why they are doing it and what they are doing, and that gives them strength.
Inspirational founders with massive vision are the founders who won’t give up.
Take your vision and weave it into an inspirational story and investors will be more likely to invest.
7. Be Ready to Bootstrap
Lastly, be ready to not raise capital.
Strong founders need to be ready for every situation, and there is a real possibility that you won’t be able to raise any capital or will raise a lot less than you set out to do.
Do you feel like investors aren’t biting, and you’ve been fundraising for months? When your fundraising is not going well, it is time to pause and re-think your strategy. It is probably time to switch to plan B and to bootstrap.
The important thing is to have clear plan.
What can you do with no or little capital? How long can your team go without being paid? Can you tap your friends and family to help a little bit? Can you make progress on the product? Can you sell more customers? Can you execute on the business without the capital?
Come up with a very clear plan. For example – we won’t try to raise again for the next six months. During this time, we will grow revenues by X percent MoM and add A,B,C product features. We will all work from home and will have to dip into savings. We think that based on the feedback from the investors, if we achieve the above goals we are likely going to be able to raise capital in six months.
Having a very specific and concrete plan and having very specific and open conversations with your co-founders is really important. Come up with a plan, discuss it, get feedback and then go back and execute on it.
How badly do YOU want YOUR business to exist? If you have to make it happen, then no slow market and no lack of investor checks will deter you. You will find a way to make it happen.
La comunidad emprendedora de Bogotá, en Colombia, se ha expandido para empezar a tener enfoques específicos en programas de Startup Weekend con ediciones como Travel, Educación y Negocios. Durante el último año se ha ido fortaleciendo a través de sus líderes de comunidad, y quieren crecer para generar más impacto en las personas que hacen parte de este ecosistema.
Los equipos que apoyan en la organización de eventos y construcción de comunidad de la capital Colombiana y su líder Elkin Garavito, nos cuentan un poco de la importancia del emprendimiento en la región.
En Bogotá se destacan varias iniciativas que están fortaleciendo el ecosistema empresarial tanto gubernamentales como de carácter de asociativo de personas, así como iniciativas del sector privado. Por otro lado, en sector público se está construyendo el plan maestro TIC que define los objetivos de tecnología y emprendimiento de la ciudad a mediano plazo. El proceso es concertando con diferentes actores relevantes de la industria e instituciones que tienen una relevancia en el sector y es como herramienta para hacer control político al gobierno sobre que se quiere que se necesita en temas TIC y de emprendimiento. En movimiento de personas, se destacan varias comunidades que han surgido y que desempeñan un papel constante en el ecosistema de convocar e incentivar los procesos de compartir conocimiento.
Destacan comunidades como Legal hackers , BogoDev, +Diseño, Lean Startup y otras muchas que están usando meet-ups y otras herramientas similares para propiciar encuentros de personas que están interesadas en estos temas.Desde el punto privado están los espacios de Coworking en los que se destaca HubBog como uno de los pioneros en el temas de emprendimiento y que apoya varias comunidades. De igual forma Impact Hub Bogotá, que aporta en emprendimiento social, Atom House enfocado a emprendimiento tecnológico y Sector Tic que tiene una oferta de contenido y cursos.
Bogotá Connect y Sikuani.net por otro lado, trabajan en la identificación de actores y en la visibilidad de los mismos.
La motivación de los países para apoyar el emprendimiento tiene varios componentes, algunos que son obvios como la generación de empleo y un mayor ingreso económico para las diferentes personas que se involucran, pero más allá de lo obvio esta la construcción de capital social qué se hace por medio del emprendimiento que hace las personas se conecten y tengan relaciones saludables, normas claras de relacionamiento facilitando los procesos culturales y de creación de empresa qué benefician a la sociedad en general.
Si miramos el emprendimiento basado en la innovación, definitivamente se puede aumentar el impacto desde programas de gobierno e iniciativas privadas que buscan el bienestar de los ciudadanos usando proyectos de emprendedores qué logren estos efectos a una fracción de lo que lo hacen ahora.
En septiembre de 2014, UP Global en conjunto con Google for Entrepreneurs, lanzó el White Paper, anunciando 5 ingredientes que ayudan al fomento de un ecosistema de innovación y startups. En este documento, se ofrece un esquema de trabajo y lenguaje común para las comunidades de emprendimiento alrededor del mundo. La publicación resalta cinco ingredientes críticos que soportan a los ecosistemas prósperos de emprendimiento: talento, densidad, cultura, capital y ambiente regulatorio.
En Latinoamérica buscamos lanzar la versión 2.0 de este proyecto a finales de 2015; teniendo en cuenta las ciudades principales de Latinoamérica e incluyendo diferentes tipos de mercado en la región, hemos estado trabajando en conjunto con Google Latinoamérica para el análisis de problemas y soluciones en la región dentro de los cinco pilares.
La semana pasada, se llevó a cabo el primer workshop de la Ciudad de México en WRK, espacio de co-working anfitrión de la oficina regional de UP Global. Dentro de este taller, tuvimos la participación de representantes de la comunidad de emprendimiento, instituciones universitarias y de apoyo al emprendimiento, inversionistas, aceleradoras, gobierno, y más.
La dinámica, liderada por Leticia Gasca, de Fuckup Nights, tuvo un gran resultado; se obtuvieron los principales problemas de cada pilar en la primera parte del taller y durante la segunda se crearon grupos de trabajo para generar soluciones a esos problemas específicos.
Este proyecto, que ha llevado a cabo sesiones en otras 5 ciudades latinas, incluyendo Bogotá, Buenos Aires, San José de Costa Rica, Lima y Guatemala, se realizará además en Guayaquil, Guadalajara, Medellín, Viña del Mar y Santo Domingo; y continuará con una serie de Hangouts y Mesas Redondas en las que se discutirán las soluciones para así crear un segundo documento enfocado en la región.
Du hast eine geniale Startup Idee? Es wird ein kreatives, originelles und innovatives gewerbliches oder industrielles Startup mit oder ohne hohe Wachstumsabsichten? Du wirst diese Idee an diesem Wochenende am Startup Weekend Lucerne 2015 ausarbeiten (falls nicht, hier gibt es noch Tickets!)? Und für den richtigen Knall zum Start fehlt Dir nur noch das nötige Kleingeld?
Dann bist Du hier genau richtig! Die besten Geschäftsideen der Schweiz werden im Rahmen der SWISS STARTUPS AWARDS 2015 mit CHF 200‘000 Startkapital prämiert.
In concert with an established entrepreneurial community, Seattle has become a premier cluster for raising capital– particularly for private space industries. For more than a decade, the city has quietly hosted several of the world’s most well-funded private space ventures and just today, Elon Musk announced plans for a Seattle office for Mars colonization.
Participants at Startup Weekend Space.
Seattle has nurtured such celebrated brands as Starbucks, Microsoft, and Amazon, but it owes its reputation as the ‘Jet City’ to an older, innovative local: Boeing. Boeing became a cornerstone for Seattle’s economy through funding advances in human air travel, and through its continuing investments in human flight, the company remains close to the Seattle’s current renaissance in jet technology.
“Seattle is a great place to start a space business,” Eric Anderson, co-founder of Planetary Resources said at an August fundraiser. “There’s a confluence of high-tech hardware and software communities, and a highly educated workforce [in Seattle].”
“I like to call Seattle, ‘Silicon Valley light.’”
Planetary Resources, a company researching the technology necessary for mineral retrieval from space, is located east of Seattle, near Microsoft. Anderson also helped found Space Adventures in 1997, the first private-sector company to successfully brokerage space tourism. The company’s first client, Dennis Tito, paid $20 million for six days in space.
Founded in 2010, Planetary Resources has attracted such billionaire investors as Larry Page, Eric Schmidt, and Charles Simonyi (the only private citizen to travel recreationally into space, twice) to the idea of mining in space.
Anderson said that Seattle– like Silicon Valley– has a powerful combination of available capital and innovative culture. Anderson cited the relationship between Seattle’s academic and aeronautics communities as a value partnership for the development of space exploration.
Blue Origin, Boeing, and Planetary Resources are all located within a ten-mile radius of the University of Washington, which offers top-tier programming in computer science and medicine, and accounts for thousands of educated residents in Seattle. The area is also home to such influential space investors as Simonyi, Jeff Bezos, Paul Allen, and Bill Gates.
With close to $500 million in personal investment from Bezos, Blue Origin intends to design, manufacture, and sell rocket technology to other privatized space organizations over the coming decades.
During the “Space Race”– the famous Cold War subplot of spending and political control of outer space– the US government invested up to five cents from every tax dollar into the development of technologies related to space exploration and research.
Currently, less than half a cent of every tax dollar is used in this way.
Government divestment from space has inspired influential investors from Seattle (and around the world,) to apply their knack for business innovation towards operating privatized industries in the newly underserved markets of space.
“In 2012, for the first time, global government spending in space declined… However, the space industry as a whole expanded due to the exponential growth of emerging commercial space companies,” Chad Anderson, European managing director at Space Angels Network, said. “The growth going forward is expected to continue to come from new commercial business models, entrepreneurs, and startups.”
Based in Seattle, Space Angels Network is a global agency of 50 seed and early-stage investors focused entirely on private-sector space ventures. The organization is the global leader in angel investment for private space startups.
Billionaires Elon Musk (of SpaceX,) and Richard Branson (of Virgin Galactic,) have made well-publicized investments in space technology over the past decade, as well, and have substantiated the possibilities for individual investors in space’s private-sector.
Fostering a Startup and Innovation Ecosystem found that whether businesses are just starting, or trying to scale, access to capital is critical for success. Experienced capital– through billionaire investors or through firms– can really make a difference for new companies. Policy makers can also take proactive measures to make it easier for startups to access the capital required to start and grow businesses.
Through available capital for Seattle’s space companies, the city looks to solidify its status along Houston and Cape Canaveral as global centers for space innovation. Seattle earned its “Jet City” credo from a commitment to building airplanes, and contemporary investors hope to return the city to a leadership role in building jet technology for the future.
We invite you to read along and lend your perspective.
What challenges are you facing in your community?
What solutions have you developed?
What questions do you have about these communities?