Rules for a startup during an investment boom

In connection with the next dot-com boom in the US, some startup owners only think about how to “raise” more money. It is easy when investors are lining up, and start-up startups at the sowing level receive seven million dollars. 42Floors co-founder Jason Freedman (Jason Freedman) tells how startups are being presented : everyone is given two and a half minutes to present, then a short session of answers to questions, no business plans. An audience of half a thousand "angels" is eager to invest in someone. For a couple of days, you can easily close a round of investments with a seven-digit amount, and investors will bargain, offering two to three times more than the declared amount of funding. One of these sent Jason four emails, three SMS, then called and sent a message to LinkedIn - just to fit in before the end of the round.

Startup 42Floors was founded in November 2011 and provides an online office search service. Investments by March 2012 were $ 400K.

Jason Friedman formulated several rules that a startup needs to follow in a hot market.

1. Mutual respect Even in the most difficult of past times, Friedman writes, when he at times received up to 30 failures in a row, no one showed disrespect to him. Many of the failed investors tried to help. Now the situation has turned in the opposite direction, and now it is our turn to show respect for investors when many of them have to refuse. The world of startups is tight, and we will have to work together for a long time. Our manners will not be forgotten, bad or good.
2. Optimization by people, not money. The proposed investment is amazing: ten million, twelve, fifteen ?! This is just insane. The job of an entrepreneur is to attract investments for a business, and often this means evaluating a business as expensive as possible. But if you want to build a large company, then for the next four to five rounds of financing and for eight years of development it is more important to think about the right partner for the business, and not about the amount of investment. This is not an eBay auction in which the one who offers the best price wins. We need to look for long-term investors - strategic partners.
3. Lack of haste. It is difficult to build a long-term relationship with an investor if you drop a 30-minute presentation on him and you need to immediately write a check, otherwise you will leave the room.
4. Attract more money. Additional money in the account can be useful for scaling up the business, which is necessary in preparing for the next round of financing. It is now believed that at a seed level, investments of $ 1.2 million are normal.
5. Fix the price of the stock (priced round) . Thanks to convertible bonds, a startup has almost no risk of sudden closure. You can always attract extra money as long as there is a wish to write checks. It’s not necessary to even discuss the conditions with the documents for the AA round . If earlier the process took two months, now it is five days. But the problem with convertible bonds is that there is an upper bound on the score, and if your startup is the same as 80% of other startups and it doesn’t fire sharply, then the next round of funding may be less than this limit, and then some problems will arise.

And we must remember that the "gold rush" will not last long and the pendulum, as always, will then swing in the opposite direction.