Tag Archives: funding

Partners and Advisors

So as the three of us are working together, we are also discussing what skills we have and what we need; what players are missing from our table.  Perhaps some of the readers may know better than us, and can lend their two cents in the comments, but here is what we have come to learn so far re: the development of an early-stage team:

Well of course, the first thing is to assess what you are bringing to the table.  Are you an experienced entrepreneur?  A CEO or COO?  A front end designer/developer?  A back end programmer?  Or even just the person with the money? I have found that sone of the most important things to assess are:

  • Are you a talker or a listener?
  • Are you creative, with big ideas and tons of inspiration, or are you grounded and practical, tweaking what you are given?
  • Are you a planner or a doer?
  • Are you a developer?  If so, is it front end or back end?  Would you architect a whole site and database, or do small detailed projects?

Once you’ve figure these out, you need to…

While there are start-ups founded by one person, you will almost always see the most successful to have pairs.  And usually the pairs are made up of one outgoing partner, and then a quieter supportive one: Larry Page and Sergey Brin, Steve Jobs and Wozniak, Larry Ellison and Bob Minor…the list goes on.  I, personally, feel that you simply need another person to bounce ideas off of, to help the thing that exists grow.  I think that, regardless of your other skills – whether they be finance, design, programming, business – there are two types of founders out there, and you better be damn sure you have both.

Big Ideas/Creative
On our team, I frequently consider Christian to be this individual.  He brainstorms ideas from nothing, just imagining something he would want and figuring out how best to do it.  He can envision it on a huge scale, how it changes people’s interactions, or redefines an industry, or draws hundreds of millions of users.  He can discover five solutions to problems that haven’t even been encountered yet, and throw out three more if those arn’t liked.  He would like nothing better than to be in a room with a bunch of intelligent and creative thinkers, dreaming up a project and how to build it.  People like this are necessary for a company to grow and prosper.  He keeps us motivated and inspired; he reminds us we are doing this, keeps us thinking and sharing and reaching for our goals.  Thankfully, he can also get into a project and think practically, too, which is important…

Small Ideas/Practical
I consider myself, and am frequently referred to, as the practical one of the group, the grounded partner.  Its hard for me to dream big when I know our user count will just pass 50 on launch.  I enjoy being given a big idea and refine it, recognizing its weaknesses and developing solutions, assessing time lines and priorities and keeping people focused and down to earth.  I’m always watching the numbers: the bank account and the days until its empty, the number of users and their satisfaction.  I’m working on the small projects: how do get more invites sent, better metric technology, more balanced gold economy.  I’ll politely listen to new ideas, find a place for them, and remind people of what our top priorities are now.  These people, ideally, tame the big thinker and help the company make its way toward a world changing endeavor.

Now, you do need more than just two people, but you should keep a good balance between the two categories above.  Everyone on an early stage start-up should share pieces of both of those categories, I think, but the dynamic of your team should definitely favor the practical: you’ve had the idea, now you need to do it with a minimal amount of changes and bickering.  You will need a CEO, COO, CTO, and CFO type.  Practical skills for early-stage employees to have include knowledge of SEO, metrics, financial forms and strategies, small business development, PR experience and connections, a variety of programming languages specializing in the one you use, and of course social web experience.

Keep in mind that your advisers are generally not people who have a lot of time to give, so don’t rely on them to build your metrics gathering system or design your logo.  But they should be dedicated to seeing you reach success and happy to look over your products and examples, offer advice, and make introductions for you.  I first suggest you find someone who understands raising money and financing.  Someone who knows VCs and angels, how to approach them, what to have prepared, etc.  The second would be someone highly experienced in your field.  Working on a social network?  Get a high-up from Facebook, Myspace, Bebo, or Hi5.  Making some video sharing thing?  Look to people with YouTube, Rev3, Ustream, or Seesmic experience.  Have a huge tagging aspect?  Try Flickr, Delicious, or WordPress.  These people know the technology and how to access the market.  By this point, ask them who else they think you should have – if they are good advisers, they’ll know.  Usually, someone experienced in Biz Dev and someone well known in the world to evangelize your product are useful.

But wait!, you say.  How can I hire and pay all these people without any funding?  When can I raise money? A good question, and one that depends entirely on your situation.

Tough cookies.  There was a time when you could take just an idea and some drawing to an angel and still get seed-level funding.  With the economy going how it is, those times are pretty far past.  I don’t want to say it is impossible, as I’m sure someone could come forward with an example of it happening recently, but its tough.  Its the real Black Swan.  Most early-stage investors at least want a team of founders, a prototype, and generally even some traction (even if its just showing that a few hundred of your FB friends have been using it in beta testing for a few weeks, and havent left.)   You can certainly try to raise money with just an idea, but it’ll be REALLY tough right now.

Well lucky you; don’t go flaunting that fact too heavily, or someone else will try to recruit them.  In fact, make sure these people are incredibly tied to your idea, that they have a lot of faith in you and wouldn’t leave for somewhere else just because that place can pay them.  Think carefully about giving these people a founding status (and ammount of equity) or atleast a founding-employee.  So now, with your idea, a good developer or 2 (dont have more than 3 this early on, I suggest…too many cooks and all.), a person to focus on raising money somehow, and a person to work on user growth – start making a site.  Once you’ve got a prototype ready, ask for lunches with possible investors (see my post on these) and chat with them; peak their interest.  Then make a deck and elevator pitch(<-great advice) and start sending it around.  Definitely have images from your prototype in it.  You should be doing a lot of alpha testing (which I’ll discuss in a later post) while these early meeting are going on, so you have user testimonials and traction to show at the next meeting you hopefully get invited to.  From there on, its a lot of luck and negotiating.  (PS: While not necessary, having a good advisor that can intro you to the people and name drop from you is definitely helpful!)

Then why are you asking me?  Go talk to them about funding and hiring.  Ask about how you may be able to attract people using small ammount of equity and promising back-pay.  See if they can help you with decks and elevator pitches and cap tables and the like.  Hopefully, if they are good, they can begin introducing you to VCs, angels, and other possible early-stage employees.


The First Investor Meeting

So we are thinking of raising a round of angel investment in the next few months.  While we’ve been reading up on Cap Tables, Executive Summaries, Slide Decks, and things needed for official suit and tie meetings, we aren’t sure how to get that first cup of coffee with potential investors.  Here’s some great advice our adviser told me:

You Are The Star:
Think of yourself as a talented high school quarterback.  Maybe you aren’t the best of your state, per say, but you are clearly ahead in your team and ready to try for the big leagues.  Before you start applying to colleges and selling yourself to recruiters, you first visit the schools you are interested in and see if they would be a good fit for you.  You should start the same way with investors: they should want YOU by the time this phrase is done, not vice versa.

Pick your schools: The Ideal, The Acceptable, and the Fallback
Ask around and get a long list of investors (angel or otherwise.): at least 15, but 20+ would be safe.  Research ALL of them: get an idea of what sort of companies they invest in and if they appear, on the surface at least, to be a good fit for your company or idea.  Categorize them as Poor Fits, Decent, and Ideal.  Your first coffee meetings should be with the investors you know you don’t want.  This is just to get you practice, and to spread the word in the investor world about you.  Don’t meet with your top choice investors until you really feel ready and have had at least 5-10 practice rounds.

Introduce Yourself in a Neutral Environment
Next, see if you can find someone in your contacts who can get you a personal introduction to them.  If not, don’t be afraid to blind email them.  Let them know you are working on a new idea, have XX amount of experience, and want to ask them about the investment industry, their experience, etc.  Be sure you do NOT meet them in their office.  This sets a precedent for professional attitudes, poker faces, and non-disclosure crap.  Buy them a coffee, be laid back and conversational, be polite but not reverent.

Interview Them
At this meeting, ask them about their interests, what they are looking for, how involved they like to be with their companies, how much money they have invested in the past, and, if they can share it, what sort of success their portfolio companies have encountered.  If they are at ALL interested in investing in new companies, they will inevitably ask what you are working on.  Here you should have one sentence that sums up everything concisely, but leaves them wanting to know more.  If it feels right, you can follow this up with a brief description, under 2 minutes.  If they dont ask about your company, they probably aren’t worth your time.

A Subtle Sale
Inevitably they will then ask, “Well, when are you looking to raise money?”  Your answer should be about 2-3 months further out than you truly think, so you don’t sound desperate or needy (IOW: “Oh, in 4 – 6 months).  They will then ask “Well, how long could you go without funds?” You respond, “Well, money isn’t really an issue.  My (last company, parents, relatives, loans) are supporting me for a fair amount of time.”  They look surprised, “Well then, why are you interested in raising money?”  You calmly retort, “Well, I don’t want people to look at this as just some pet project of mine.  I want it to be legitimized, able to stand on its own to feet.  We are working with (list companies they may have missed out on funding) already, and I know we can get even stronger people with the right funds.”  This keeps you from sounding like you are begging for money, but also lets them know specifically how an increase in funds would help you.

As you wrap up, be sure to ask if they can introduce you to anyone they think would be interested in the idea.  This not only lets them know that you are talking to other investors and people, but also gets you some great new contacts, and lets them feel especially helpful and more invested in the idea.

Make sure you are aware that, from these meetings to the moment you receive the cash can take anywhere from 3-6 months (and that is, of course, assuming you raise funds in this economy.)  It certainly isn’t impossible, but it’s pretty damn hard.