I was on a panel recently along with Randy Williams of Keiretsu Forum and Andy Fillat of Leapfrog Ventures to talk about the current state of affairs with funding startups.
A few of my own observations:
Fundings are happening for first rounds. The saavy investors who have capital know this is a great time to invest – teams are able to do more with less, valuations are reasonable, talent is plentiful and there have never been such a great set of tools at your disposal to launch and build efficiently – from offshore talent networks, open source, APIs, cloud computing, Google keywords and viral social marketing.
1) It’s all about traction and showing that you can get things done.
I really like the UserVoice story. Have a look at:
http://blog.uservoice.com/2009/04/17/the-year-of-the-scrappy-start-up/
After hitting a wall fundraising last fall, the team basically went into extreme “Ramen” bootstrap mode. They all shacked up together and moved to Santa Cruz to keep costs down, did some consulting on the side and raised a little friends and family money to pay the bills, focused on finishing and launching their product, and started to get customers to download and pay for the product. By the time they returned to the fundraising circuit in Feb/March, they had over 10K customers. Suddenly they were showing serious traction and had an over 3x oversubscribed round. They made it happen.
2) Investors are taking longer to make decisions because they have the luxury of seeing more opportunities and less capital chasing them. If it feels like herding cats, maybe consider this case:
We invested in Grouply back in January. In December, I had a conversation with the CEO that he thought he had enough interest around the table but there were still many investors ”kicking the tires”. My advice was that if he was comfortable enough he’d get to a close, to set a date and get on with drafting the documents. It’s always a risk to do so but it tends to drive things to close – if there is momentum, no one wants to miss the boat on a good investment opportunity. Sure enough, he set the date a month later and ended up closing in an oversubscribed round. He was smart to take more capital and extend runway rather than be too concerned about the dilution that had.
3) If your capital needs are below what a VC would look for, explore alternatives:
I just met with another seasoned entrepreneur yesterday, starting a SaaS business to automate tracking of finished goods through supplier networks to end customers and returns. He’s chosen to bootstrap the business by targeting a couple of major accounts where he has gotten their attention with the possibility of substantial cost savings and through a consulting engagement to do an audit of their logistics. He will implement the new product there as part of the consulting gig (free add on) and get them using it. If it sticks, he’ll start charging soon after as they upgrade in scope.
Yet another option to explore: an SBA backed loan. Wells Fargo is a leading lender in this program which can provide up to $250K in funding. You have to personally guarantee the loan, which may not be the right fit for everyone, but if your venture is showing signs of cash flow and you need a little growth capital, this could be the right fit for you.
Grants: although I have not had much experience here, I am hearing stories of others having good success in getting government program grants. Basically this is no strings attached money that is non-dilutive. It may take some time to secure it but could well be worth it.
