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  • Upstart CEO: Other People’s Money, Raising Venture Capital

    Need money, European money – space money – circus money – money from voodoo – just money.

    As the CEO of Upstart: Business and Management for 20-40 Year Old Professionals, I am always in a search for money: American money, European money – space money – circus money – money from voodoo – just Money.  Anything to push the business down the line somewhat more: always trying to move from survival to exceptional, and while the milestones are stubborn, the entrepreneur must be more so to reach their goals.

    One of the great reasons for starting any business today, especially if you are going to be online exclusively to start, is that there are very low cost barriers to launch your enterprise, and the number one reason any business fails is undercapitalization, so you already have advantages that the majority of business fifteen years ago did not enjoy, so be wise, yet opportunistic.

    I just read a great book by Dermot Berkery, Raising Venture Capital for the Serious Entrepreneurs, which really gets into the details of the mindset, culture and deployment measures that an entrepreneur should consider, when developing a fundraising strategy.

    Whether one is looking for “Seed Capital” or “Stage D Financing”, it’s important to know the vernacular and methodologies, in which both Angel Investors and Venture Capitalists find most acceptable and viable. Here’s what I learned so far:

      1. A journey (usually 5-8 years) for building a valuable business should be broken into a series of stepping-stones – with typically a 12-18 month gap between the stepping-stones. Each stepping-stone comprises an integrated group of milestones, related to product, market, customers, management etc. They demonstrate measurable progress on the way to the goal. They are also a good place to stop and think about the remaining journey. Is the planned route still the correct one or have other less risky routes opened up. Is the destination we are heading for still the best one.2. Action steps for entrepreneur:
      a. Identify the primary prize.
      b. Unearth other prizes: changes because of competitors or regulations.
      c. Conceptualize up front – create stepping-stones to the prize.
      d. Figure out the resources necessary from stepping-stone to stepping-stone to capture the prize.
      e. Find an investor to finance the jump to the first stepping-stone.
      f. Negotiate a win-win deal with the investor that: give the investor a share in the ultimate prize compatible with the risk that must be taken in funding the company. Give the entrepreneur a continued strong interest in pursuing the prize.
      g. Challenges for entrepreneurs: Product – can excite and low entry barriers. Market: size, evolution, competition. Team: world-class or pedestrian management or support staff.3. Stepping-Stones:
      a. Prove the economics of the concept.
      b. Expansion – team, revenue, customer base.
      c. Scale.

      4. CEO must ask hard questions: milestones likely attainable and the margin for error. How much will the valuation increase for each milestone: what milestones are at most risk of not being met: what alternative sets of milestones can be met: should the company take on a lot capital now or a smaller amount of capital now in the hope of boosting the valuation of the company – how risky this would be?

      5. Large corporations are famously bad at creating new businesses. The main reason for this is that they are organizationally unwilling or unable to stage the investment with stepping-stones and to be ruthless about abandoning (or accelerating) the project midstream.

      6. 12-24 month ticking clock: every CEO of an early-stage company and his or her investors understand the ticking clock – the number of months that remain before the company runs out of money.

      7. No correlation between the amount of money raised the company’s success.

      8. The first step for the early-stage investor is to disaggregate the different activities in the company that absorb capital – capital assets: product development costs: leadership and administration: working capital and sales ramp-up financing.

      9. VC funds are usually set-up a 10 year horizon, which has been good for entering and exiting a portfolio of investments.

      10. Include in business plan: potential for accelerated growth: achievable position of market power (position to be exploited), differentiation: capable, ambitious and trustworthy management: value enhancing stepping-stones: realistic valuation: promising exit possibilities.

    Good luck.

    Calvin Wilson
    Founder and CEO
    Upstart: Business and Management for 20-40 Year Old Professionals

      Filed Under: Gamechangers


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