Start-up tips, venture funding 101

I don’t talk too much about the business of making businesses: but having been through the hurdles a few times and having sat on almost every side of the table, I wanted to share some of my lessons learned.

First off… money is nice, but it isn’t the end goal of venture capital or growing a gigantic business. The experience and talent VC’s can bring to a start-up can be immense (or completely void) and the biggest asset usually becomes the investor’s network.

So from my viewpoint, the three main assets in order of importance:

  • Network
  • Expertise / Talent
  • Money

To back up my statement: look at this Dow Jones Venture Source report, where 64% of start-up CEO’s working with VC investors agree that the investor’s network is the most important asset.

Network: some venture capitalists excel at networking, but relatively few understand how to leverage social media to virtually connect. A powerful network of like-minded investors has access to hundreds of talented professionals and resources that MONEY CAN’T BUY.

Expertise / Talent: on a daily basis you can run into brilliant investors who have some amazing insights. The big problem here is that expertise and talent is being flattened out by communication and network evolution (think about it, with the simple press of a button on an iPhone you have access to 100’s of people/insight/expertise.) Gone are the days where expertise and talent is truly unique. Rather than have a limited supply of talent, we often get buried in a colorful splash of artistic noise.

Money: ever heard the statement “money can’t buy you everything?” – it is true. Money cannot buy talent or a real network. Those are personal property and often have ticket prices far exceeding a start-ups budget range (and usually outside of many VCs who are trying to save a few pennies in unfamiliar territory.)

Taking action, educate yourself to minimize your learning curve.

There are many pitfalls in not understanding how professional networks work, especially in the realm of investor relations. Orange Media has a good 10 Steps to Raising Venture Capital that identifies the importance of knowing who you are talking to (this is a higher and higher priority for any sales ventures as the dollar figures increase in size.)

Another great resource of understanding is the idea of “napkin math.” If you can’t express your idea with basic bullet points and common ideas: then you need to revisit your sales pitch and talk to the mirror a few times. Use metaphors and analogies that your prospect understands (remember, the prospect is an investor!)

Bill Bryant of Draper Fisher Jurvetson investments, has a great breakdown of “Why VCs are not evil” , which includes the basic napkin math that venture investors think about when looking for the next big thing.

Review the resources that some pretty smart people have provided:

One of those big resources is about terms and funding mechanics.You should give yourself a fairly intensive crash course on what types of funding options you are looking for, where the benefits are, and what risks you can avoid.

The Funded Publishes Ideal First Round Term Sheets – The Funded is a global community of venture backed startups that have “been in the trenches”, this term sheet provides some critical items that could cost you the future of your company.

Y Combinator to offer standardized funding legal docs -Y Combinator has some pretty smart advice here. Start-ups should NOT spend thousands and thousands of dollars debating over legal clauses and attorney fees. In the start-up phase, your money should be going towards advancing your offering and gaining market share (not legal cost.)

My personal advice to folk in the start-up space:

  • Take criticism
  • Learn quickly
  • Never give up in what you believe
  • Learn from those who have gone before you