Venture Capital For Dummies E-Book

Nicole Gravagna

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch
• Veröffentlichungsjahr: 2013

Seitenzahl: 617

Beschreibung

Secure venture capital? Easy.

Getting a business up and running or pushing a brilliant product to the marketplace requires capital. For many entrepreneurs, a lack of start-up capital can be the single biggest roadblock to their dreams of success and fortune. Venture Capital For Dummies takes entrepreneurs step by step through the process of finding and securing venture capital for their own projects.

• Find and secure venture capital for your business
• Get your business up and running
• Push a product to the marketplace

If you're an entrepreneur looking for hands-on guidance on how to secure capital for your business, the information in Venture Capital For Dummies gives you the edge you need to succeed.

Leseprobe

Venture Capital For Dummies®

Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com

Copyright © 2013 by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

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Library of Congress Control Number: 2013942071

ISBN 978-1-118-64223-8 (pbk); ISBN 978-1-118-78470-9 (ebk); ISBN 978-1-118-78473-0 (ebk)

Manufactured in the United States of America

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Venture Capital For Dummies®

Visit www.dummies.com/cheatsheet/businessanalysis to view this book's cheat sheet.

Table of Contents

Introduction

About This Book

Foolish Assumptions

Icons Used in this Book

Beyond the Book

Where to Go From Here

Part I: Getting Started with Venture Capital

Chapter 1: Nothing Ventured, Nothing Gained: Venture Capital Basics

Understanding Venture Capital and Venture Capitalists

Introducing venture capitalists

Knowing what VC firms look for

Getting familiar with the VC fund lifecycle

Choosing the Venture Capital Pathway

Identifying a good venture business

Looking at alternatives to venture capital

From Zero to Venture Capital: Knowing What to Do to Secure Venture Capital

Preparing your company to attract interest

Putting together the deal

Making your pitch

Chapter 2: The Venture Capitalist Mindset

Performing a High-Risk Job: The VC’s Role

Clearing up a few myths about venture capitalists

Don’t fight ’em, join ’em: Working together on the deal

Understanding How a Venture Capital Fund Works

Fundraising — where the investment money comes from

Investing — finding companies to fund

Managing — keeping tabs on the investments

Harvesting — collecting the final payout

Taking a Closer Look VC Investments

Understanding key limitations in the selection process

Making long-term investments for fast growth

Keeping current with the venture capital industry

Looking into Other Kinds of Funds and Venture Companies

Chapter 3: Is Working with a VC Right for You?

Identifying a VC Investible Company

Scalability: Understanding your growth potential

Management: Assessing the entrepreneurial team

Market share: Determining how large your market is

Competitive advantage: Foiling the competition

Making the VC Decision

Chapter 4: Alternatives to Venture Capital Funding

Taking on Debt

Investor loans: Debt from individuals

Factoring: Accounts receivable finance

Small Business Administration loans

Tapping into microfinance

Raising Money through People You Know

Choosing whom to approach

Discussing terms and agreements

Putting the agreement in writing

Dancing on the Head of a Pin: Angel Capital

Raising capital through angel investors

Connecting with angels

Attracting a Mob: Crowdfunding

Understanding the JOBS Act impact on crowdfunding

Giving perks: Non-equity crowdfunding

Using crowdfunding successfully

Heeding warnings regarding crowdfunding

Accessing Grants to Fund Your Company

Federal grants: Small Business Innovation Research (SBIR)

State grants

Foundations and commercial entity grants

Growing Organically: Bootstrapping

Advantages of organic growth

Making organic growth work for you

Knowing When Enough Is Enough

Chapter 5: Connecting with Investors Online and Face to Face

Creating an Online Persona for Your Company

Creating a website and branded e-mail address

Connecting through LinkedIn

Using Twitter

Finding friends on Facebook

Blogging about your company

Launching a Community Campaign

Having coffee with people

Going to networking events

Giving non-pitch presentations

Online Tools for Real-Life Funding: Investing Sites

Looking at Gust and AngelList

Using investing sites effectively

Making Contact with Investors

Creating a hit list

Researching VC firms

Getting in touch with the VC

Updating VCs on your company’s progress

Taking time to building relationships

Mum’s the Word: Pursuing Non-Disclosure Agreements

Knowing when to ask for an NDA

Keeping your secret sauce a secret

Part II: Becoming Attractive to Venture Capitalists

Chapter 6: Positioning Your Company for Funding

Viewing Your Company as a Whole Package

Avoiding product development tunnel-vision

Intersecting product development and business development

Knowing when your company is fleshed out enough for investors

Overcoming company weaknesses

Looking at Business Plan Basics

Knowing who the business plan is for

Creating the plan: A primer

Including vital components in your plan

The living document: Diverting from the plan

Highlighting Your Product as a Company Keystone

Thinking strategically about your product

Developing your product

Generating excitement via prototypes and beta versions

Creating a product platform

Paying Attention to Your Promotion Strategy

Devising a Marketing Strategy

Marketing 101: Understanding what goes into a marketing plan

Including strategic partners in your distribution channels

Acquiring new customers

Predicting Future Revenue with a Pro Forma

Gathering the right financial statements

Testing and updating your pro forma

Building a model to shape your business

Creating multiple pro formas for multiple outcomes

Validating your numbers

Chapter 7: Cultivating Relationships

Setting the Company’s Course: Founders and Those Who Make the Company

Adding high-value members to your team

Addressing founders’ personal needs

Advisory boards

Connecting with Outside Firms and People

Finding top-notch consultants

Locating reputable finders

Entering into strategic partnerships

Building Relationships with Customers

Pre-selling your product

Turning customers into early investors

Offering free trials and beta tests

Using payment as proof, not just revenue

Creating Relationships with VCs through Networking

When to start networking

Becoming a leader in your field

Making sure the initial meeting goes well

Planting seeds for funding

Building a Relationship with Your Acquirer

Chapter 8: Providing an Exit Strategy

Understanding the Value of a Good Exit

Seeing how value increases near the end

Basing valuation on your exit

Checking Out Your Exit Options

Mergers and acquisitions

IPOs

Stock buybacks

Designing Your Exit Strategy

Knowing your industry

Thinking about timing

Developing strategies early

Understanding the Role of Advisors in Your Exit

Listing the types of advisors

Recognizing why the CEO shouldn’t lead the exit

Creating an Exit Story

Amassing your data

Developing the story

Spreading the word

Avoiding Mistakes That Can Blow an Exit

Part III: Getting Your Ducks in a Row: Deal Design and Due Diligence

Chapter 9: Structuring Pre-VC Deals

Recognizing the Red Flags

Tallying Your Investors in a Cap Table

Fundamentals of the Funding Lifecycle

The concept stage — bootstrapping

The early start-up stage — friends and family

The traction start-up stage — angel capital

The growth stage — venture capital

Putting Together the Term Sheet

Including general terms

Commonly negotiated terms

Comparing Equity and Convertible Debt

The entrepreneur’s friend: The attraction of convertible debt

The investor’s barely tolerated cousin

Restructuring as You Move from Early Rounds to VC Rounds

Tidying your capitalization table

Unseating board members

Overcoming Pitfalls of Early Deal Structure

Creating a capitalization plan: Your funding roadmap

Calculating how much you should raise

Chapter 10: Leading the Risk Conversation

Getting into the Mindset of Venture Investors: Horses and Wolves

Horses or wolves? The eyes have it

Learning to speak “horse”

Understanding Risk

Identifying business risks to success

Seeing how risk changes over time

Tying Risk to Valuation

Using the risk factor valuation method

Assessing risk with the scorecard method

Exposing Risk: Strategies That Keep You in the Game

Addressing both constants and variable risks

Outlining your mitigation strategies

Outlining past risks that the company has overcome

Connecting Cash Raises to Risk and Company Success

Using lower risk hurdles to plan fundraise timing

Looking beyond the next milestone

Finding ways to lower risk

Chapter 11: Telling Your Valuation Story

Valuing Early-Stage Companies

Why traditional approaches don’t work

Being flexible when talking with a VC

Choosing the best way to discuss valuation

Timing your valuation

Getting the first round price right

Using Multiple Valuation Methods

The venture capital method

The scorecard method

The risk factor adjusted method

The simplified net present value method

The burn rate method

Summing it all up

Creating Your Valuation Story

The five parts of your story

Fleshing out the story

Chapter 12: Negotiating Your Terms

Scoping Out the Negotiation Landscape: The Fundamentals

The items on the negotiating table

Developing the right mindset

Knowing your negotiation partner

Recognizing your own power

Knowing when to stick to your guns and when to be flexible

Having a plan B

From Initial Interest to Negotiating Table: Identifying the People Involved

The managing director — your lead investor

The investment committee

Herding kittens, er investors: Syndication

Handling the Valuation Question during Negotiation

Providing a number — and a rationale

Keeping the end in mind: A little piece of a big pie or a big piece of a little pie

Making sure your “great deal” doesn’t kill your company

Adopting a strategy that gets you top dollar

Most-Often Negotiated Term Sheet Terms

Valuation

Board seats

Liquidation preferences

Protective provisions

Employee pool

Anti-dilution clauses

Vesting of equity

Dividends

Redemption rights

Other terms

Chapter 13: Due Diligence: Preparation and Fundamentals

Peaking under Rocks and behind Trees: An Overview of Due Diligence

Knowing what VCs look for

Understanding your role

Going Step by Step: The Phases of Due Diligence

The initial vetting

Learning more by having you pitch

Deep dive meetings

Entering into full due diligence

As Time Goes By: Knowing the Due Diligence Time Frame

Understanding why it can take so long

Speeding up the process

Preparing Documents for Due Diligence

Going through the due diligence checklist

A few final pointers

Part IV: Pitching to Investors

Chapter 14: Planning Your Pitch

Communicating a Lot in a Little Time

Balancing thoroughness and brevity

Having multiple pitches ready

Creating a Pitch from Scratch

Asking yourself key questions

Tips to follow when creating a pitch deck

Knowing When to Pitch

Aiming for the beginning of a high-growth phase

Planning for future development

Assessing whether you’re ready for investor capital

Measuring the Success of a Pitch

Managing expectations

Tracking progress after the pitch

Staying Positive through the Process

Focusing on something new when optimism wanes

Taking positive steps to stay on investors’ radar

Cultivating the attitude of a life-long learner

Using confidence and coachability to attract investors

Chapter 15: Visualizing the Deal: Creating Your Pitch Deck

Designing Pitch Decks That Work

Creating a pitch for every occasion

Knowing what the pitch deck should contain

Showing off your branding and style

Knowing what to include on an absentee pitch deck

Following best practices for a great presentation

Covering the Important Pitch Topics

The very first slide

An overview of your company

The problem your product solves

Your product or product line

Barriers that reinforce your company’s value

Your business model

Target market

Your marketing strategy

Your future milestones as risks

Your traction

Your valuation story

Your team

Your exit strategy

The ask and the deal

Your summary slide

Using back pocket slides

Chapter 16: Show Time! Making Your Presentation

Choosing the Lead Presenter

Listing the traits of a great pitch presenter

Getting everyone pitch ready

Wowing Your Audience

Making a connection

Speaking the message

Practicing to make perfect

Honing an elegant performance

Being on time

Mastering the Technology

Using remote control clickers to switch slides

Running live demos

Including a video in your pitch

Depending on Internet connections

Picking presentation file types

Chapter 17: If at First You Don’t Succeed — and Even If You Do — Try, Try Again

Understanding Why Investors Say “No”

Communicating after the Pitch

Showing regular progress

Using e-mail wisely

Assessing and Fixing What Went Wrong

Following Up on the Different Outcomes

Possibility 1 — You enter into due diligence with a VC firm

Possibility 2 — You hear the words “No, thank you”

Possibility 3 — You hear nothing at all

Possibility 4 — You hear “Come back after you hit certain milestones”

Overcoming Common Obstacles

Experiencing personality limitations

Raising money too early

Pivoting frivolously

Being in too many markets

Treating Fundraising as a Process

Planning for regular pitch opportunities

Handling failure

Contacting more VCs

Planning the next funding round

Part V: The Part of Tens

Chapter 18: Ten Ways to Lose a Deal

Being Uncoachable

Having a Critic

Quoting an Inflated Valuation

Pitching an Idea

Being Invisible or Forgotten

Confusing People

Pitching to Only One Investor

Having Connections in Only One Town

Failing to Study Up on Your Investors

Pitching Your Product Instead of Your Deal

Chapter 19: Ten Places and People That Can Lead You to a VC

Service Providers

Angel Investors

Other Venture Capitalists

Online Search

Networking Events

Pitch Events

Mentors

Broker-Dealers

Incubator Staff

Funding Websites

About the Authors

Cheat Sheet

Connect with Dummies

Introduction

If you are reading this book, chances are that you own a company or are planning to start one sometime soon. You are probably thinking about raising venture capital. We appreciate that you have come to us in your search for information. It’s okay if you don’t know a thing about venture capital or private investments at all. We are here to help! We wrote this book for anyone who’s considering seeking venture capital. We help nearly 100 companies each year go through the process of seeking investment. All this time, we have been taking notes on what works and what doesn’t.

Venture capital and venture capitalists may seem scary and larger-than-life at first. It turns out that VCs are real people, too! In this book, we demystify the venture capitalist so you can get past that “all powerful man (or woman) behind the curtain” feeling.

Venture capital investment is only one of the many ways that you can fund your company.

Venture capital investment can help a start-up company attain much larger milestones in a much quicker timeframe than it would otherwise be able to do.

Companies that take venture capital get more than money. They also get the expertise of the VCs and VCs’ network of advisors and business people.

The venture capital track is the fast track. Companies that take venture capital grow large very quickly or are acquired in a few short years. VC-backed companies don’t do anything slowly.

After you read this book, you may choose to pursue VC funding, or you may realize that you have other options that better suit your company and your needs. This book can help you grow your company no matter which path you choose.

About This Book

We wrote Venture Capital For Dummies for smart people with no prior experience raising money from venture capitalists. Founders with great start-up companies come to us every day asking for advice, education, and introductions to investors. We used our experience to create this book.

Through our work at the Rockies Venture Club, we found ourselves teaching each entrepreneur the same information about venture capital investments. We thought boiling all that knowledge down into one little book — this book — would create a handy reference!

Of course, we wrote this book for entrepreneurs, but angel investors, friends of entrepreneurs, and even consultants who help entrepreneurs grow their companies can find useful information here. When everyone in an entrepreneurial community understands the fundraising process, everyone can help support start-up companies.

If you are an entrepreneur, or know an entrepreneur and want to support his or her company, you can find investors. Everyone knows someone who is an investor or knows an investor. This book can help you uncover the investors in your own network.

As you read this book, keep the following things in mind:

We use the term venture capitalist and VC interchangeably, reflecting the way the terms are used in everyday conversation.

The sidebars contain extra information that we think supports the main ideas in the book. You can skip them entirely and still get the full facts.

Venture Capital For Dummies is a reference book that you can read in any order you wish. If you are feeling particularly technical one day, you can dive into the chapters about investment structure. If you are more interested in understanding investor psychology, you can read those parts first. Focus on the stuff you want to know.

Foolish Assumptions

In writing this book, we made some assumptions about you, our dear reader. We guess that you are one of the four types of people that we run into through our work in the Rockies Venture Club. You are probably

An entrepreneur: Not just any entrepreneur, but one who is ready to get his or her company off the ground, grow it fast, and make some money!

An investor: Angel investors and people who invest in their friends’ or family members’ start-up companies need to understand the future funding pathway for the companies they support.

An advisor: Professional consultants and other smart folks (mentors, advisors, gurus, yodas) who donate their time are most helpful when they can give their client companies the best advice possible.

A job hunter: Jobs are created in start-ups as a matter of course. Venture capital dollars often go to hire key employees. Further, venture capital itself is an attractive industry where both senior and junior VCs can make good money in an exciting job. Either way, this book can help you understand the start-up/VC landscape as a job hunter.

As a member of one of the listed groups, you have come to the right place. We have the information you need to understand venture capital on a level you may not have dreamed possible. If you don’t recognize yourself in this list, we welcome you anyway. Have fun. Look around, and we bet you’ll find that you learn a thing or two.

Icons Used in this Book

To help you navigate through this book and find the information you’re looking for, we’ve included a variety of icons.

When you’re dealing with the future of your company and venture capital, the stakes are pretty high. You’ll find this icon whenever you run the risk of losing an opportunity or delaying your company’s success.

As experts, we know about and share with you the best shortcuts, workarounds, and timesavers. You’ll find them with this icon.

There’s a lot to know and to remember when you’re doing all the tasks you need to do to raise funds to help your business grow. Look for this icon to find key concepts and principles.

If you’re a detail person, you may appreciate these little nuggets of information. Although interesting, we’ve included them more for fun. Feel free to skip them if you just want to get to the nuts-and-bolts info. Doing so won’t hurt your ability to understand or seek (and hopefully) secure venture capital.

This icon highlights the stories of real business that have already gone down the path you’re beginning now.

You can find lots of extra info online related to securing venture capital. This icon points you to these articles.

Beyond the Book

In addition to the material in the print or e-book you're reading right now, this product also comes with some goodies you can access on the web. Check out the free Cheat Sheet at www.dummies.com/cheatsheet/venturecapital for information on things you can do to avoid losing a deal, speed up a deal, and find VCs.

Head to www.dummies.com/extras/venturecapital to find pointers on how to work with team members who are family, find a securities attorney, and dress for your pitch.

Where to Go From Here

Go ahead and browse this book. Follow your interests and instincts. No previous knowledge is required! Start with a chapter that seems new and interesting or maybe even begin with a topic where you feel more experienced. Head to the table of contents or the Index to find topics that you want to know more about immediately. The table of contents is a great map you can use to find information listed chapter by chapter. The index lets you really want to drill down on a topic. If you’re completely new to venture capital, why not begin with the chapters in Part I?

Wherever you go, you’re sure to find useful information.

Part I

Getting Started with Venture Capital

Visit www.dummies.com for great Dummies content online.

In this part…

Discover the mindset that sets founders of venture businesses apart from other business owners.

Get the lowdown on what venture capitalists look for, how venture capital fund works, and the legal restrictions that impact which companies are selected for investment.

Determine which funding options — venture capital, angel investors, crowdfunding, and more — can best help your company meet its growth goals.

Take the first step to securing venture capital by creating opportunities, online and face to face, to attract the attention of a venture capitalist.

Chapter 1

Nothing Ventured, Nothing Gained: Venture Capital Basics

In This Chapter

Getting familiar with venture capital and venture capitalists

Determining whether you have a venture company

Seeing the whole venture capital process

If you’re starting a new business, welcome to the club! Starting a business can be the most exciting, scary, enlightening venture that you embark on. If you’ve been running a business for a while and are just starting to look for money, you’ve come to the right place!

Venture capital is often misunderstood and feels like a big cloaked, black box to many people. In reality, venture capital is pretty easy to understand after you’ve been given the basics. Further, venture capitalists are more open about sharing information than people think. You just need to know where to look for the information.

In this book, you discover which companies benefit most from venture capital, how venture capital works, how to connect with VCs, and when the time comes, how to pitch to investors. We also describe the whole start-up funding landscape and explain how to navigate it wisely. This chapter introduces you to venture capital and provides a general overview. Consider it your gateway to this exciting world.