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  • Raising Venture Capital for the Serious Entrepreneur Pt. 1

    Negotiate a win-win deal with the investor: share the prize compatible with the risk that must be taken in funding the company. Give the entrepreneur a strong interest in pursuing the prize.

    Starting or expanding a business is exhilarating – that is until the real-world becomes “right now.” The one thing every entrepreneur has too much of is advice: advice how to make the business better, bigger and faster, and what the entrepreneur never has too much  — at any time during his life of being an entrepreneur is MONEY.

    Too often, Upstart: Business and Management for 20-40 Year Old Professionals members have these great ideas, have discerned how to implement and connect those ideas into something tangible – at times, they even get really skillful people to help. Yet, money is as elusive as a great product or service – even more so.

    I was reading Dermot Berkery’s book, Raising Capital for the Serious Entrepreneur, and wanted to pass on some of his insights:

    1.      A journey  (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. This 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 the 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.      New 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.

    Good luck.

    Calvin Wilson
    Founder and CEO
    Upstart: Business and Management for 20-40 Year Old Professionals
    calvin.wilson1@verizon.net
    http://twitter.com/Upstart__Nation


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