Fatal startup errors
Written by Tom Taulli
Source Forbes.com
Los Angeles
A few weeks ago, I met with the founder of a new company, who told me that very well-known investors want to invest about $ 2 million in his enterprise. I asked who would be the lawyer of the deal? .. The answer made me cringe: "one of the investors will recommend his lawyer friend."
Why is this wrong? Firstly, start-ups need someone who will work for them, not for an investor. It is like buying a home. You do not want to invite a lawyer who offers a real estate broker, because you want to be sure that you get the most profitable contract.
“Founders need a consultant working for their interests,” says Lawrence Zulch, founder and CEO of Dantz Development, a venture capital firm, and then sold to EMC.
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Without a doubt, often entrepreneurs make key mistakes in the process of financing a company. What other fatal mistakes are made by entrepreneurs, attracting money?
Poor scheduling
George Eberstand (George Eberstand) is a tech tech veteran of the world. His last venture is called “nTag”.
George believes that scheduling is critical when attracting investment. “Do not start moving too early, but when you move, move fast,” he says.
Startups are like real estate, spoiled - when they stagnate in the market for too long. Wait and prepare an irresistible, strong 'story', then focus on 100% in obtaining funding. You have to create an auction situation around, and even if in the end you find only one investor, your business will acquire the feeling of a “New Company”.
Charlie Jolley example. When the money ended in his first startup, it took another 6 months to attract new investments. “After that, we never really caught up with the moment we lost,” says Jolly.
That all changed in his latest venture, Sproutit.com. This company provides large enterprises with small business applications for small businesses.
“My advice is to have someone in your business whose main job is to know how much money you need, at least next year,” says Jolly. “In this way, they will be able to begin the process of raising capital, at least six months before they are required, without taking you away from your business.”
Wrong investors
Anu Shukla is a typical serial entrepreneur in the technology sector. She is the founder of Rubric, a company that automates the marketing of enterprises, which she sold for $ 366 million in February 2000.
RubiconSoft, its latest startup, produces software for retailers and online service providers.
Shukla says you need to conduct research on prospective investors.
A few things to note:
- Does the investor focus on transactions of your type?
- Did they invest in your direct competitors?
- Do they really want to invest?
“Funds that are at the final stage of their life cycle and VCs that collect a new fund will not look at investments in companies at the initial stage and will raise a higher barrier for you. Avoid them. They just want to learn at your expense, ”she says.
- Do they have experience? Be suspicious of VCs who bring the EIR to a meeting (Entrepreneur in Residence - The entrepreneur with a venture capitalist is next to him and studies the market when something worthwhile comes up - he gets his investment) “If you are at a rather early stage, you will simply contribute to their internal development efforts,” says Shukla. “If you are in this situation, do not report much about the future direction of the product’s development.”
Comprehensive investment
Listen to Buddy Arnheim, the Perkins Coie transaction lawyer.
As a fact: one of the firms they funded was Boeing, it was back in 1916.
Then, this firm helped Amazon.com in the 1996 venture round.
“For investment in the early stages, you need to be easier,” says Arnheim. “The most frequent conditions are not meaningful, because the company will either start a new round, or close without saving any property. We see essentially only two structures for attracting seed-capital: investments in a share ("Introduction of shares") or a bridge loan. "
A bridge is a short-term loan that does not require asset security (after all, which assets are in a startup?). Credit recipients either pay it off during the next round of financing or convert it into a company's share (usually with a discount on the share price).
“Introduction of shares” means that investors become co-owners of the company. For small “introductions” it can be costly if the ownership structure is complex. Due to legal costs. “Things like certain dividends, rights of redemption, etc., really do not play any role,” says Arnheim. Why these things, if the company is not worth anything, if there is no chance of success?
Bad investor manners
After founding six companies, including his latest venture, Carbonite's online-backup service, David Friend created a full-fledged insight into investors over the past 25 years. He understands the etiquette of investors. His advice: do not overdo the presentation, over the clothes and do not offer to sign a non-disclosure agreement. Such a proposal is a signal to the investor that the inquirer knows little about how the financial world works.
The last tip is related to company valuation.
It is necessary to look not only at the assessment of the company that the investor offers, but as a whole on the list of conditions and price.
Not always, those who offer the highest score - offer the best conditions in general.
As an example, the company BuildOnline.com
Source Forbes.com
Los Angeles
A few weeks ago, I met with the founder of a new company, who told me that very well-known investors want to invest about $ 2 million in his enterprise. I asked who would be the lawyer of the deal? .. The answer made me cringe: "one of the investors will recommend his lawyer friend."
Why is this wrong? Firstly, start-ups need someone who will work for them, not for an investor. It is like buying a home. You do not want to invite a lawyer who offers a real estate broker, because you want to be sure that you get the most profitable contract.
“Founders need a consultant working for their interests,” says Lawrence Zulch, founder and CEO of Dantz Development, a venture capital firm, and then sold to EMC.
')
Without a doubt, often entrepreneurs make key mistakes in the process of financing a company. What other fatal mistakes are made by entrepreneurs, attracting money?
Poor scheduling
George Eberstand (George Eberstand) is a tech tech veteran of the world. His last venture is called “nTag”.
George believes that scheduling is critical when attracting investment. “Do not start moving too early, but when you move, move fast,” he says.
Startups are like real estate, spoiled - when they stagnate in the market for too long. Wait and prepare an irresistible, strong 'story', then focus on 100% in obtaining funding. You have to create an auction situation around, and even if in the end you find only one investor, your business will acquire the feeling of a “New Company”.
Charlie Jolley example. When the money ended in his first startup, it took another 6 months to attract new investments. “After that, we never really caught up with the moment we lost,” says Jolly.
That all changed in his latest venture, Sproutit.com. This company provides large enterprises with small business applications for small businesses.
“My advice is to have someone in your business whose main job is to know how much money you need, at least next year,” says Jolly. “In this way, they will be able to begin the process of raising capital, at least six months before they are required, without taking you away from your business.”
Wrong investors
Anu Shukla is a typical serial entrepreneur in the technology sector. She is the founder of Rubric, a company that automates the marketing of enterprises, which she sold for $ 366 million in February 2000.
RubiconSoft, its latest startup, produces software for retailers and online service providers.
Shukla says you need to conduct research on prospective investors.
A few things to note:
- Does the investor focus on transactions of your type?
- Did they invest in your direct competitors?
- Do they really want to invest?
“Funds that are at the final stage of their life cycle and VCs that collect a new fund will not look at investments in companies at the initial stage and will raise a higher barrier for you. Avoid them. They just want to learn at your expense, ”she says.
- Do they have experience? Be suspicious of VCs who bring the EIR to a meeting (Entrepreneur in Residence - The entrepreneur with a venture capitalist is next to him and studies the market when something worthwhile comes up - he gets his investment) “If you are at a rather early stage, you will simply contribute to their internal development efforts,” says Shukla. “If you are in this situation, do not report much about the future direction of the product’s development.”
Comprehensive investment
Listen to Buddy Arnheim, the Perkins Coie transaction lawyer.
As a fact: one of the firms they funded was Boeing, it was back in 1916.
Then, this firm helped Amazon.com in the 1996 venture round.
“For investment in the early stages, you need to be easier,” says Arnheim. “The most frequent conditions are not meaningful, because the company will either start a new round, or close without saving any property. We see essentially only two structures for attracting seed-capital: investments in a share ("Introduction of shares") or a bridge loan. "
A bridge is a short-term loan that does not require asset security (after all, which assets are in a startup?). Credit recipients either pay it off during the next round of financing or convert it into a company's share (usually with a discount on the share price).
“Introduction of shares” means that investors become co-owners of the company. For small “introductions” it can be costly if the ownership structure is complex. Due to legal costs. “Things like certain dividends, rights of redemption, etc., really do not play any role,” says Arnheim. Why these things, if the company is not worth anything, if there is no chance of success?
Bad investor manners
After founding six companies, including his latest venture, Carbonite's online-backup service, David Friend created a full-fledged insight into investors over the past 25 years. He understands the etiquette of investors. His advice: do not overdo the presentation, over the clothes and do not offer to sign a non-disclosure agreement. Such a proposal is a signal to the investor that the inquirer knows little about how the financial world works.
The last tip is related to company valuation.
It is necessary to look not only at the assessment of the company that the investor offers, but as a whole on the list of conditions and price.
Not always, those who offer the highest score - offer the best conditions in general.
As an example, the company BuildOnline.com
Source: https://habr.com/ru/post/4033/
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