October 20th, 2009 — Mark Littlewood
A very enjoyable BLN CEO Tales last night. Thanks to some fantastic and inspiring entrepreneurs, active investors, great event staff and Taylor Wessing and Calibre One for sponsoring the event and thus making it all happen. A very impressive turn out of venture and aspiring-venture backed CEOs and some excellent and active investors. The short talks from Francis Charig (Antix Labs), Michael Ross (eCommera) and Johnny Attwood (SwapItShop) on fund raising lessons were fantastic.
They are three very different entrepreneurs who had closed funding in the past 12 months and we asked them to talk about what they had learned from the experience. Between them, they have raised over $90 million for companies they have founded so they know a bit of stuff.
Our events run under the Chatham House Rule so we won’t transcribe the talks but here is my attempt at summarising some of the points made in the talks and in conversation with others.
Don’t be afraid to use advisers Don’t be afraid to use outside help to raise funds. As CEO founder of the business you will need to get involved in a lot of investor presentations but it is very hard to raise money and focus on driving your business hard at the same time. Help might include having a board member with significant fund raising experience and existing relationship with investor or to use a reputable corporate finance house. If you are going to engage a corporate finance operation, make sure you use one that can (a) understands your business, (b) is actually doing deals and (c) speak to the CEOs of the companies they have raised money for.
Whenever you use advisers, remember that it usually pays to pay for advice from people that are experienced and well practised in the area that you are getting advice from. If you are using a lawyer, use one that does a lot of venture investment. It will almost certainly be cheaper to use the one that did your conveyancing in the short term but will almost certainly cost you a huge amount more in the future.
Investors Angels can be hugely valuable if you can find ones that understand your business and can add real value although the speakers last night had all closed venture capital investment. Getting a good chairman on board from an early stage is a huge asset.
Good VCs say, ‘No’ early. Bad VCs say, ‘Yes’ early and then spin things out, sometimes over a period of months, before they say no. This can be incredibly damaging for a business and seemed to be a common experience, both for the speakers and others in the room. If you are given term sheets early by an investor, find out how many of their term sheets actually close.
Try to align the interests of your investors if they are operating in a syndicate as much as possible. If you have a syndicate of investors who are operating at different stages of their funds, their interests are unlikely to be aligned as the company grows. An investor at the end of a fund will want an early exit from a business whilst one at the start will have more appetite to see the business grow big.
Understand what VCs are thinking – on an individual basis. They all have different investment theses and you need to understand what they are looking for on an individual basis in order to decide who you approach and what you say.
Valuations Don’t get too hung up about valuations. If you do, you will find that other clauses, liquidation preferences etc are likely to be imposed which mean that founders end up with a very poor return even if a company has a decent exit.
Due Diligence Investors will be doing due diligence on you. They would go through your underwear drawer if they could. You should be doing the same for them. You owe it to yourself to do so. What do their portfolio CEOs think about them? Where do they say they add value? Where do they actually add value? Look them up on TheFunded. Remember, Due Diligence is a 2 Way Street.
Remember, you are right. VCs can be very perverse. Do not be surprised if you are turned down by multiple VCs for staggeringly different reasons. One speaker runs a business with multiple revenue streams and has been turned down for being too cash generative (he has a consulting piece to his business), too high risk (the platform piece of their business was unproven) and too unfocused – he had not decided whether he was consulting or building value. Take feedback on board but don’t take it to heart and keep focused on what you know is right.
Any other top tips? Next CEO Tales, 3rd December – HERE.
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