As founders, a VC, angel and, now, through our advisory business at Founder Craft, we get asked for advice or “feedback” a lot. The questions range across a wide spectrum. However, they have one thing in common – they as for our opinions.
My Partner at Founder Craft, Gregarious and I have been doing some live streams over the last few months in addition to my InvestStream videos on YouTube and Instagram.
A little over a month ago, I was in Oman for an Investment Committee meeting and Greg messaged me. He said he was thinking about raising money for his new startup, Fanabulous! and what did I think about streaming the process.
I thought it was a great idea. Doing each episode, completely unscripted, focusing on him as a founder preparing to raise money for his new startup, should resonate with founders and even with some investors.
After some fine tuning, we launched ‘The Raise‘, an interactive, live-stream where Gregarious (the Founder) and I (the Investor) dive into the process of his fundraise.
You can subscribe to the YouTube channel to receive notifications of every episode. If you have questions, feel free to throw them up in the comments or drop us an email at raise@foundercraft.com
There are a multitude of things that help make #startups attractive to #angel #investors & #venturecapitalists. In this video, I shared 3 things that I think are critical to a startup being venture fundable.
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There are a few things that should be on the checklist of any startup before they think of approaching investors other than friends and family.
The first is TAM or “Total Addressable Marketâ€. VCs need big markets to support big companies. A better understanding of VC economics would help explain this a bit better but for the moment, just assume that VCs need big exits otherwise they go out of business. Big exits are usually via IPOs. Rarely does the NYSE or Nasdaq allow listing a company under a $1 billion market cap. In order for a company to list for on a public exchange for a billion dollars, they really need a few hundred million in revenue and lots of growth prospects otherwise, public investors won’t buy into the IPO. After years of rapidly increasing valuations in the space, we’re starting to see some strain in the ride-sharing space after Lyft and Uber’s IPOs. Even Slack has struggled after going public. Unless the market that a startup is targeting is a multi-billion dollar market or growing rapidly, it’s very difficult to convince most VCs to invest.
The quality of the team is critical to the success of a startup and its execution. If the team is solid, investors are more likely to get excited about investing.
Finally, there’s traction. Having traction is critical to an early stage startup looking attractive to angels and VCs. If the traction is strong and there’s a well understood growth plan, investors are more confident that the team can attack the large total addressable market.
Venture Capital can be complex and in this episode of InvestStream, I explain “carried interest†or “carry†as it’s more commonly known and why it’s important for VCs.
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Carry is discussed often amongst Venture Capitalists and other Private Equity investors but rarely amongst founders of startups. Politicians have talked about how carried interest should be taxed. Why do Venture Capitalists and other fund managers care about carry and what does it really mean? There are always variations but this video is meant as a simple illustration so that people thinking of VC as a career have some understanding of how important carry is to their overall compensation and also for entrepreneurs to understand that a VC’s success, really does ride on the coattails of each startup they invest in.
I’ve helped run two accelerators in India and Silicon Valley. I also serve on the Investment Committee for an accelerator program based in the Middle East and I’m a mentor at an accelerator program in New York City. I’ve spent a considerable amount of time around accelerators and have seen the benefits and challenges that both founders as well as the program itself faces.
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YCombinator, the preeminent accelerator, was founded in 2005. Since then we have seen hundreds, if not thousands of accelerator programs around the world pop up. Mostly emulating the YC model while employing some variations.
The idea of an accelerator is centered around providing entrepreneurs more than space and the occasional connection to a resource. They were designed to provide a curriculum based approach to getting ideas off the ground. The best accelerators, not only designed the best curriculums but they also brought in the best network of entrepreneurs, engineers, and investors from the ecosystem as mentors. Â
There are many great accelerator programs. It isn’t YC or bust. Each accelerator program has some focus that makes them better for certain type of companies. For example, there are accelerator programs that are vertically focused and will bring networks and mentors in that particular industry to help companies. There are some that focus on startups from a specific geography.
There are many accelerators that take equity for “helping†a startup and they *may* invest in some of the companies at the end of the program. I can’t talk about the quality of these accelerators but I will say that they may provide more value in less developed startup ecosystems than places like Silicon Valley, NYC, London, Tel Aviv, Singapore, Berlin, Bangalore, etc. I’m not a fan of the “you can give me equity at the beginning of the program and I may invest cash later if I think you’re worthyâ€-model. I think it creates too much signaling risk and also starves young startups of two very important things, cash and equity. If you’re confident in your process then, at least invest a small amount of money in the beginning and handle the post-program follow-on at a slightly higher valuation or cap than the beginning of the program. There’s still some signaling risk for the companies that don’t get a follow-on.
In certain parts of the world, like India, accelerators have gotten bad name and a lot of founders won’t even consider an accelerator as an option. In recent years, most accelerators in India have either shut down their cohort based programs or they’ve changed them in significant ways. However, one of the most renowned investors in the world just announced that they are starting an accelerator program in India – Sequoia’s Surge program! Accelerators can play a very important role in bringing in mentors and resources that founders can get help on scaling their technology, finding initial product market fit, determining pricing points for a product, determining and tracking KPIs better, etc. etc.
Founders should spend as much time as possible doing their due diligence on an accelerator as any other investor, (check out https://youtu.be/3oltOd5Mdjo for more tips on raising money for your startup).
Just like college or graduate school, people strive to get into the best programs in the world. Those that make it into the top universities, have a significant advantage over others because of the credibility and the network that the top tier university has given a student access to. It’s not that different for accelerators. The top accelerators will be the hardest to get into and they will add real value. Of course, the value an entrepreneur can get out of the program, really depends on the founder and how they use the resources provided to both extract value but also contribute significant value back to the network they’ve been privileged to become a part of.
If you’ve been a part of an accelerator, please share your experience in the comments.
A toolkit of collaboration and productivity tools really helps get things done better and faster. Over time, we all develop an appreciation for tools that really help us getting more done, faster and better. A viewer on InvestStream asked what tools I use to help collaborate. This isn’t an exhaustive list but here are 4 key products I use all the time.
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