Growth5 Blog

Tuesday, May 26, 2009

Raising Capital as a First Time Entrepreneur

Earlier this month, Dave Lavinsky of growthink interviewed Brad Feld of Foundry Group about advice for first time entrepreneurs raising capital. Three takeaways:
1. Your VC firm is your partner
2. Angel Investors are the friend of the first-time entrepreneur
3. Don't look for investors who are not a good fit
Excellent points. Let's start with #2, Angel Investors. We've been meeting with entrepreneurs who started with seed/family/friends money and then are trying the VC route immediately following. They are frustrated they are getting nowhere. There are lots of reasons for this, one of them is that they are usually not ready.

Angels have experience that entrepreneurs should take advantage of. Like, "wow, the way your business is set up, you're going to have a real hard time getting VCs interested. We can point you in the right direction to get that cleaned up." We've been promoting Angel Investors regularly, they are an excellent resource. Use them.

#1: VC firms as partners. We won't work with entrepreneurs unless it is a partnership, therefore we pick our entrepreneurs very carefully. We HAVE to be able to work together. Don't make the mistake of viewing VC firms as just a group that is investing capital into your company. You will be working with them very closely, so make sure it's the right fit.

#3: Wasting time looking for investors that are not a good fit. If you have a list of 100 VC firms you hope will be investors, don't waste your time trying to convince all of them to invest in your firm. Find the five best "fits" on that list and focus your time on them. The article points out three important criteria for your search:
a) geography: many VCs will only invest in certain geographic regions
b) sector: for example, Foundry Group simply doesn't invest in Clean Tech; no matter how exciting the company looks
c) stage: many VCs focus on companies at specific stages (e.g., some only want post-revenue companies, etc.)
If you are not sure where your startup should be looking for capital, give us a call.

[You can read the full article and listen to the Feld interview here.]

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