Bootstrapper.com - Confessions of Serial Entrepreneurs

So I get asked all the time to help people find financing. Am i qualified to do this? Yes, and no. I never raised money for my companies, i’m not an investment banker nor am i a VC. sure, i’ve invested in a few things along the way but am I a financier? No.

So am I qualified to answer this? maybe.

I do run a seed capital group and fairly well connected in nyc finance, and make many connections between both sides (have 4 deals in and around term sheet from the last 3 months) and i like to think i’m valued for my unbiased feedback and calling both ;sides on their bullshit right off the bat but i could be wrong .

So now that i’m done discrediting myself ..i’d like to answer my own question

Many entrepreneurs waste countless time trying to raise capital - mainly because they don’t understand what investors look for.

Investors look for 2 things: 1) Protection of their investment and 2) Exit

Protection of their investment means that they give money, they want a shot at getting it back…there are 3 primary types of companies that can get funded
a) demonstrable, protect-able IP with a clear usage
b) serious traction in usage, revenue or profits
c) proven management team (need a ceo, founder, coo or chairman that has had an exit before or a super sexy public story)

Usually professional investors want 2 of those 3 but sometimes they’ll take 1 of them (usually requires either traction or proven management, ip by itself can be elusive to fund without a story)

Them the investor looks towards an exit. Generally is there either a) a $20-50MM potential exit in the next 12 months if its a small investment

or more likely

b) a $1BN+ addressable market opportunity where realistic potential is to generate $100MM a year in revenue within 3-5 years.

or

c) You play in a market that does a lot of M&A and you could be bought for $100MM+ with a little traction in 3 years or so

The ipo option isn’t so realistic right now unless its a creative firm (read: hedge fund, pe fund or ibank) that will so some structured finance to get liquidity. Most VC’s aren’t creative financiers though.

If your startup doesn’t fit into those categories you probably aren’t fundable. Don’t want to bust your bubble but better work on getting traction than barking up an unfruitful tree.

So you have a million dollar idea right? Well, do you have $100,000 to invest in it? no. have you been hit by a car lately and get a 7 figure settlement ? (pop quiz: where’s this reference from?)

So how do you get started? Couple of questions

1. Do you have any friends that are suckers? If so, start there.
2. Do you have domain experience. Ie: worked for a company in the same field of your idea in some level of responsibility? No…
3. Do you have friends with related experience?…No….

If the answer is no to all 3 of the above questions, I suggest saving your money and buying yourself a new car or get yourself a mistress. At least then you’d get laid constantly and not just fucked once.

I’ve said this a lot of times, it’s very important to have DOMAIN experience in what you are trying to do. If you don’t ask people that do and bring one of them on as a partner.

So you want to be greedy and keep all your equity? Are you rich now? No. So why the hell are you being greedy if by partnering with X you could be rich? If you do it yourself with no experience you will probably fail.

I have people come to me all the time with great ideas and limited budgets (under 50k) and say they know nothing about web development and ask me if they should built it in india for $4995…you know what i tell them…find yourself a partner thats a techie in the space that believes in you. I will not give you a dime because I have no faith in your ability to execute. Find a partner, please. If you can’t then you probably don’t have the connections to make the company work.

But you don’t want to give away all your equity? Give me a fucking break and go home now.

Research!
…
Everything

…then ask yourself a simple question “Do you know enough to run this company” now before you answer that question think about this scenario. Pretend the idea is a 5 year old girl stuck inside a burning building. Are you the fireman? If the answer is no, find partners that are. If you try starting a company and you’re not the fireman - that means you’re the poor slob who ran into the burning building and never came out.

Goodluck to you…