Great
insights by Steve Baxter in BRW this week
As an innovator in the tech world- who
doesn't want to be that billion dollar multinational?
These magical and mystical creatures
even have their own name in start-up land:unicorns, says Steve Baxter
- entrepreneur and investor, founder of co-working space River City
Labs, founding director of StartupAUS and a Shark on Shark
Tank Australia
Earlier this month,
Heidi Roizen a Silicon Valley venture capitalist, wrote a great blog post
on how to build a billion dollar company and walk away with nothing.
One thing that I
learnt 12 years ago from my friend and mentor Jerry
Engel - a Professor of Business at HAAS School of
Business at Berkeley University in the Valley - was that the average successful
startup could expect to be diluted to 2% of the company once there is a final
exit, however very often, the founders and management will also get a
percentage (up to 20pc of management and founder stock).
Savvy investors know
how important is to "keep the soul" of the business alive!
As a startup with a
great idea - know what equity you should hold on to as you grow your
business. Understand the process and begin with the end in mind.
On Shark Tank, week
after week, we have entrepreneurs ask for crazy amounts of cash for their
business, or offering a shareholding that will see future fundraising eating
into their ownership. And as an investor, if the founder doesn’t have enough
skin in the game to justify the blood, sweat and tears they need to grow their
business, it’s game over. And that’s no fun for anyone- says Steve.
So below is Steve’s 4
gems before doing a Cap Raise and starting the process of raising capital
1.
Have a funding game plan and know your numbers
Understand that there
will be multiple raisings as the business grows - remember "exponential
growth invariably means "cash burn"
A successful startup will often have a seed round, a series A, B and C round.
Every time you sell more of your business, you and your existing partners will get diluted - but remember , 15pc of a $100m is more than 100 percent of $1m!
Be upfront to your FFF investors (fools family and friends ) about what is likely to happen to their stake in the business as you hit your targets and continue growing.
From voting classes to vesting, discounts to dilution clauses, loan funding, government grants, convertible notes, backdoor listings etc etc – there are many different ways to manage how you get funds into your business.
Convertible notes are popular - a loan that converts into equity at a discount to a later valuation, which can allow for greater flexibility.
A successful startup will often have a seed round, a series A, B and C round.
Every time you sell more of your business, you and your existing partners will get diluted - but remember , 15pc of a $100m is more than 100 percent of $1m!
Be upfront to your FFF investors (fools family and friends ) about what is likely to happen to their stake in the business as you hit your targets and continue growing.
From voting classes to vesting, discounts to dilution clauses, loan funding, government grants, convertible notes, backdoor listings etc etc – there are many different ways to manage how you get funds into your business.
Convertible notes are popular - a loan that converts into equity at a discount to a later valuation, which can allow for greater flexibility.
2.
Know the tricks of the trade
Investment is never
straightforward.
Do your homework - the
5 day management course at HAAS Berkeley University is gold.
3.
Get yourself a Team
A team or advisory
board who can help you with the process - a great innovation lawyer, patent
attorney and investment banker or a Venture Capitalist that you know like and
trust is gold!
(Contact me and I will
give you a referral to a few in Australia, Silicon Valley and Boston.)
Do your homework
before you speak to any investors, and get an idea of the tools and ways that
you can ma
4.
Don’t be led by ego
Column inches or
start-up buzz is fantastic to build your start-up into a business worth
hundreds of millions, or even that billion-dollar figure. But don’t let
ambition cloud your mind. Your value on paper is just that - and being perceived
as too big too soon isn’t always a good thing.
Often, when tempted by
a large valuation, a founder can lose sight of the real value of their equity
holding.
But remember the plan,
focus on the fundamentals, raise money with the Exit in mind. Hopefully, when
you find yourself exiting your business, you’ll be well rewarded for your hard
work.
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