Tuesday, April 4, 2017

Letter To A Young Entrepreneur: On fundraising



Dear T.,


Thanks for your candid email about fundraising for your startup. It looks like you have assembled your team, your first product, and you’re getting (very early) market traction. So you feel that it is time to raise funding, in order to fuel that growth (and more honestly, because cash is running out, and you’re not likely to finish the year if you don’t raise a round of funding).

If I may, let me share you a bit of advice, that stems from being on the receiving end of a total of 18 MEUR of venture funding (as an entrepreneur, shareholder or board member), and advising countless startups through the hoops of the fundraising circus.

Think already about your next fundraising
This may sound counter-intuitive: going through a first round of funding is already such a challenging feat, that will strech your patience and nerves over a 6 months period (at least –nine months being not uncommon from start to money in the bank), why on earth should you be thinking about the next round ?
Well, let me put it this way: raising the first time…I wouldn’t say it is easy, but at least you are on a blank slate. You may project how great your startup idea is, how it will make millions on year 3, and you stand a chance to find an investor willing to buy into the dream and fund your seed round. But when you actually are in year 3,…you’d better be in good shape, to have actually delivered on your business plan.
Otherwise your next fundraising will be scorching, with only your initial funders to go to, and then it will be normal that they accept to fund you further only under drastic conditions (huge dilution, loss of control,…)
So: make sure that whatever funding you raise initially, it is sufficient to put you on safe ground for a second round that can tap into the broader investor market.

Due diligence on the investor too
Most of the time, young entrepreneurs are at a significant disadvantage when negotiating with investors : they’ve done it time and again, whereas for you it is the type of event that happens only a couple of times in an entrepreneur lifetime…
Also, I believe that entrepreneurs have a right to conduct some “due diligence” on their investor too. You should be able to ask (very politely) :
-       What other deals have you done ?
-       How will you get involved in the governance of the startup ? (every entrepreneurs aspires to “smart” money; just define the expectations behind “smart”)
-       What timing can you guarantee ? (to avoid being dragged for months in vain)
-       Can I speak to the CEO of one of your portfolio companies ?
Note that they are likely to introduce you to the “good” CEO of their portfolio ; do your research, and look into the less palatable deals…

Don’t focus too much on valuation, beware the small print
Entrepreneurs tend to focus on valuation, because that is one metric that they can readily understand: how much investment money are we getting in exchange for how many percent of the company’s equity ? (the valuation also seem to imply how much the founders’ shares are worth: beware that it’s an illusion until the company gets fully acquired, believe someone whose shares were once worth tens of millions…virtually J )
Don’t focus too much on the valuation, it is only one parameter of the equation. Pay close attention also to the small print, the clauses that are attached to the funding. For instance, the party that gets a “drag along right” can force the sale of the shares of another shareholder to a third party. An entrepreneur not having it may see the opportunity of a company exit disappear; an investor having it may be able to force the initial founders out of the company. “Liquidation preference” and “anti-dilution clauses” are also mechanisms that can have very dramatic effects on founders’ shareholdership (in some cases, it may happen that a startup is sold e.g. for $5M, and the founders receive exactly 0$...)

Don’t do it alone  
The complexity and length of a fundraising process are reasons enough to be seeking some help. You can easily find intermediaries, who will manage the fundraising process with you and for you (in exchange for a retainer and a success fee of around 5%). Unfortunately, there’s a wide variety of profiles, from charlatans to top notch corporate finance advisers, with an extensive network of investors. Again, thorough background checks are in order. In any case, I would advise in favor of using the help of a fundraiser: they will help you sharpen your presentation, solidify your business plan. And more importantly, introduce you to qualified investors. And they will chase the investors in a parallel way, whereas I see too often entrepreneurs doing it themselves in a sequential way (with lots of time lost, when one promising investor finally turns the deal down).

There are many more things that could be said about venture fundraising, but this should be enough to get you started.
All the best,


R.

Roald Sieberath has been an entrepreneur in mobile messaging, ebooks, business software, and big data. He is now a venture partner and coach at LeanSquare.


Thursday, March 23, 2017

Educating Entrepreneurs across the World with InvestHorizon’s Online Courses






There is no doubt that entrepreneurship thrives with education, and never has obtaining education been easier than in today’s digital world, with top-notch materials readily available at the click of a button. Online courses bring a new level of flexibility to education and increase its accessibility. Interested individuals have the ability to obtain a wealth of information from different experts on all kinds of relevant topics, while having the freedom to choose when and how they do so.

With over 40 video presentations, InvestHorizon’s Online Courses give entrepreneurs the opportunity to improve their investment readiness level, pitching skills, or learn about the mechanics of equity investments from actual investors, among other topics, at no cost. The courses cover 4 distinct areas – Business & Management, Finance & Equity Investment, Industry & Technology, and Early Stage courses.

For entrepreneurs looking for funding, the Finance & Equity Investment courses present a handy guide on how to finance a startup, what investors are looking for, as well as the process of obtaining investment, from detailed instructions on deal-making, due diligence, financial statements, company valuation, and more. These courses are given by such experts as:


The Finance & Equity Investment collection also features a number of courses on the ins and outs of angel investing from prominent angels like:


The courses cover a variety of topics from what business angels are looking for and how to approach them, to angel syndicates, exit strategies and co-investment funds.

Focus is also given to accelerators and how entrepreneurs can benefit from them, with courses from Daniel Tomov, Eleven Accelerator Venture Fund Founding partner, and Egidijus Jarasunas, F6S Co-founder. Venture Capital is discussed as well, with a case study from Dr. Alex von Frankenberg High-Tech Gründerfonds Managing Director.

Covering more types of financing still, InvestHorizon’s course collection also features a 6-part series from the European Crowdfunding Network, led by their marketing manager Irene Tordera, which leaves no step in the crowdfunding process unexplored. The series is filled out by more videos from the distinguished Prof. Alan Barrell.

In contrast to the Finance & Equity Investment section, Industry & Technology courses cater to sector-specific interests, letting entrepreneurs learn about the particulars of different industries – design and fashion, space technologies, life science, and smart production - from the following experts:


In addition, Early Stage and Business & Management courses expand on the above material – the former providing information on how to build up a successful startup, while the latter deals with the details of running a business. 

InvestHorizon’s online courses are useful not just for entrepreneurs, but also for individuals looking to become investors, or simply learn more about the early stage ecosystem. All of the courses can be accessed here.

Wednesday, March 15, 2017


Get to know about

European Investment Project Portal


The European Investment Project Portal (EIPP, the Portal) is a public web portal established by the European Commission in order to provide greater visibility to EU projects and transparency about EU investment opportunities. By creating a common meeting point for EU project promoters and investors, the EIPP supports investment in the real economy and it is an important component of the Investment Plan for Europe.

The Portal provides a transparent forward-looking pipeline of EU investment projects spread over 25 high-economic-potential sectors with a considerable number of projects coming from the sectors of R&D and Innovation. As of March 2017 the Portal has published 140 projects, many of them being cross-border ones.

For publication on the EIPP, a project must fulfil the following eligibility criteria:
·       Have a total cost of at least € 5 million,
·       Fall under one of the 25 pre-determined high-economic-value-added sectors,
·       Be expected to start within three years of submission,
·       Be promoted by a public or private legal entity established in an EU country,
·       Be compatible with all applicable EU and national laws.

Published projects' information is presented in a structured format which can be filtered according to investor's preferences (e.g. country, sector, project cost). To make the Portal more attractive for the promoters, the minimum permissible project size was recently lowered to EUR 5 million. Furthermore, the EIPP actively continues to develop its features, such as the registration process and search tools in order to further improve the service offered for both investors and promoters.

For additional information about the EIPP, please visit its website https://ec.europa.eu/eipp or contact eipp-project@ec.europa.eu.