Entrepreneurial

Notes on raising seed financing

Chris Dixon

Jun 10, 2011 13:01 EDT

– Chris Dixon is the co-founder of Hunch and of seed fund Founder Collective. This blog originally appeared here. The views expressed are his own. –

I recently taught a class via Skillshare (disclosure: Founder Collective is an investor) about how to raise a seed round. After a long day I wasn’t particularly looking forward to it, but it turned out to be a lot of fun and I stayed well past the scheduled end time. I think it worked well because the audience was full of people actually starting companies, and they came well prepared (they were all avid readers of tech blogs and had seemed to have done a lot of research).

I sketched some notes for the class which I’m posting below. I’ve written ad nauseum on this blog (see contents page) about venture financing so hadn’t planned to blog more on the topic. But since I wrote up these notes already, here they are.

***

1. Best thing is to either never need to raise money or to raise money after you have a product, users, or customers. Also helps a lot if you’ve started a successful business before or came from a senior position at a successful company.

2. Assuming that’s not the case, it’s very difficult to raise money, even when people (e.g. press) are saying it’s easy and “everyone is getting funded.”

3. Fundraising is an extremely momentum-based process. Hardest part is getting “anchor” investors. These are people or institutions who commit significant capital (more than $100,000) and are respected in the tech community or in the specific industry you are going after (e.g. successful fashion people investing in a fashion-related startup).

“Lean Startup” evangelist Eric Ries is just getting started

– Connie Loizos is a contributor for PE Hub, a Thomson Reuters publication. This article originally appeared here. –

“Except in very narrow cases, where there’s breakthrough science that needs patent production, worrying about competitors is a waste of time,” Eric Reis told me. “If you can’t out iterate someone who is trying to copy you, you’re toast anyway.”

Ries speaks with confidence, likely because people seem to listen. In fact, he’s become one of Silicon Valley’s best salesmen, largely by preaching what seems to be common sense: in order to maximize resources, companies need to find out what customers want as quickly as possible and capitalize on those findings.

Just one indicator of Ries’s power: entrepreneurs from 100 countries watched his sold-out, second-annual “Startup Lessons Learned” conference streamed live recently from San Francisco. (Its aim? “To unite those interested in what it takes to succeed in building a lean startup,” said Ries.) Another indicator: Ries’s new book, “The Lean Startup”, doesn’t come out until September, but is already the 11th-most popular book in the business and investing section of Amazon.

Ries, 32, never expected he would make his mark as a tech evangelist. A Yale grad who studied computer science, he began his career as an entrepreneur while still in school. (He now calls his short-lived startup, Catalyst Recruiting, “a footnote to a footnote.”) But even then he found himself “considered not only an expert in programming but in startups” by local incubators and two venture firms who asked him to be an adviser.

He’s quick to note the absurdity of the situation. “We spent all (of Catalyst’s) money on marketing, thinking there would always be more. Based on what I was reading in magazines at the time, I thought the rules for entrepreneurship meant being at the right place at the right time, working hard, breaking all the rules, having great perseverance, then pounding the keyboard some more and having a beer.”

A broader network of people began listening to Ries in 2008, after he began espousing lessons he’d learned as the CTO and co-founder of the 3D virtual world IMVU. Many of those lessons centered on figuring out what works as quickly as possible through constant iteration and customer feedback. (IMVU, which Ries left four years after its 2004 founding, used to toss fresh code into its production cycle 50 times a day, he said.)

The 100 most influential VCs and angels

– Mark Boslet is a contributor to PE Hub, a Thomson Reuters publication. This article originally appeared here. –

Any list of the 100 most influential venture capitalists and angels should include the likes of John Doerr, Ron Conway and Michael Moritz, right?

Not necessarily. And not if the list you’re referring to is the “100 Most Influential VCs, Angels and Investors” compiled by Lucy Marcus, the Huffington Post columnist and the non-executive board chair of the Mobius Life Science Fund.

Call this list one for the new, social decade. Marcus, who also is founder of the Marcus Venture Consulting, posted her list this week on PeerIndex, a site that ranks people based on their digital footprints.

Some of its influencers will come as no surprise. Union Square Ventures’ Fred Wilson is number 3 and blogger investor Paul Kedrosky, number 4.

But what about Kevin Rose, Digg founder, at the top of the chart (he does have 1.2 million Twitter followers)? And how about Twitter investor Chris Sacca number 2? (He also has 1.3 million followers on Twitter.)

Other notables: 500 Startups’ Dave McClure, 9, Foundry Group’s Brad Feld, 11, and cleantech investor Vinod Khosla, 14.

Some entrepreneurial advice from U2

Jon Cook

Oct 16, 2009 15:31 EDT

Mark Solon, the managing partner and co-founder of Boise, Idaho-based Highway 12 Ventures, wrote a blog post – “Don’t Let the Bastards Grind You Down” – offering some entrepreneurial advice he gleaned from one of U2′s more underrated tunes. Now we highly doubt Bono had entrepreneurs or venture capitalists in mind when he penned the lyrics to “Acrobat,” but let’s roll with it.

Solon thought of the song after he recently rejected a funding request by a young entrepreneur, who he said “took it fairly hard” and Solon spent the next 20 minutes attempting to explain himself. When he sensed it wasn’t helping to soften the rejection, Solon piped up “Who the hell do you think I am to tell you that your business won’t be successful?” Solon then recounted his own ordeal in moving from Boston to Boise to start his VC firm and the ensuing 18-month span where he was rejected over and over, before launching Highway 12.

Nearly a decade later, Solon said he still remembers “almost everyone who said ‘no’ to me and proving them wrong still motivates me to this very day.”

For entrepreneurs rejection is part of the deal and Solon’s point is that just because you get turned down, does not mean your idea is bad, because as he added: “anyone who regularly invests in startups has said no to many entrepreneurs who went on to build wildly successful businesses.”

Solon’s more self-reflective treatment here is in stark contrast to a generally negative perception of the VC community that has recently sparked some excellent debate. Bijan Sabet, general partner at Spark Capital, has written a great blog on the prevailing anti-VC sentiment that tackles the issue from all sides. It sources Union Square Venture partner Fred Wilson’s post “The ‘we need to own’ baloney”, in which a reader posted a comment that Wilson couldn’t be a real VC, “since you don’t seem greedy, a jerk, don’t appear to know it all and actually seem human and actually appear to show some empathy – all of which are anathema and not typical VC decorum.”

It appears VCs are undergoing an internal reality check in regard to their standard operating procedures and the message from card-carrying members like Solon, Sabet and Wilson is borrowed from U2: don’t let the bastards grind you down.

Angel investor makes a Mint

Jon Cook

Sep 29, 2009 16:05 EDT

At 5-foot-8, Dave McClure calls himself “one of the smallest” venture capitalists in Silicon Valley, either “by height or by wallet size”.  But he was walking tall after Intuit announced it was buying Mint.com recently for $170 million.

That means McClure, who invested $25,000 in Mint two years ago as part of a Series A funding round, is in line for a healthy payout. At the time McClure was actually on Mint’s payroll as a consultant, but was so impressed with the startup’s founder, Aaron Patzer, that he took the money they were paying him and “turned it right back around and wrote them a check.”

Mint is the first big win for McClure out of the many companies he’s invested in since cashing out from his part in PayPal’s $1.5 billion sale to eBay. “I’ve been doing angel investing for almost five years now and this is the first full exit I’ve had,” said McClure, who first found out about the deal in a 4 a.m. email from Patzer.

A few hours later McClure was hi-fiving fellow investors Rob Hayes (First Round Capital), Mark Goines and Jeff Clavier (SoftTech VC) at the TechCrunch50 conference in San Francisco, where McClure said they were all walking around “with big-ass smiles on our faces.”

Prior to its exit, Mint had raised a combined $30 million – half of that coming in a Series C round led by Benchmark Capital that just closed in August. Some have questioned whether Mint’s $170 million sale was high enough given the amount of VC capital it raised, but McClure disagreed.

“From the angel and A round point of view it was a great outcome,” insisted McClure. “For the B round investors, I’m not sure how big a win Benchmark was expecting, but just looking at it from an IRR (internal rate of return) basis it’s still a pretty good story for them. For the C round investors, I don’t know anyone that makes that good a return in 30 days or less.”

Blogger Jason Fried, of 37Signals.com, didn’t take umbrage with the sale price, but in a post said it was an example of the “VC-induced cancer that’s infecting our industry and killing off the next generation” and that Mint’s exit was likely forced by investors. Union Square Ventures’ principal partner Fred Wilson countered Fried’s assertion in his own blog titled “Who Decides When To Exit?”