

When to raise money - Tip from a VC - samaparicio
http://navfund.com/blog/vc-tips-for-entrepreneurs-thoughts-about-raising-money

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samaparicio
I personally think this analysis is spot on.

My company, Ringio <http://ringio.com> , is at stage 2 "Working Product Stage"
and it would have been impossible to raise any money in the last 6 months as
we went from "napkin stage" to where we are today.

Anybody want to comment on their own fundraising experiences?

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jcbackus
As the original blog post author, I figured I would toss in a few comments to
add to the discussion - thanks for reading it and the great comments:

1\. Most companies are not meant to be VC-backed. If you (and the VC) can't
see your company getting to, say, $25M in profitable revenue with under $10M
of equity capital (or more revenue for more equity capital) then VC is
probably not right for you. I know, not all VCs focus on revenue and profits.
Call us old fashioned but we still think they matter.

2\. When we look at your business, we not only look at it as an investment
opportunity, but, we also compare it to other companies we are actively
reviewing. At NAV we are active investors. We have funded 5 companies in 2010
and have term sheets on 2 more. But at any given point in time we may have
5-10 companies we are actively evaluating. So it is not just a question of how
good is your business, but, how good is your business relative to the other
businesses we are currently reviewing. So on the founder investing their own
cash question, no, it is not a requirement. But given two businesses with
similar upside, if one founder has put real money into his/her business
personally, and the other one has not (but could) then the former scores more
points in our mind.

3\. VCs don't seek to take on "major financial risk." We actually spend our
time trying to understand the risks facing each business, asking how we might
help mitigate those risks, and then we compare the risks to the upside. In
other words, VCs are risk-tolerant, but not risk-seeking.

4\. Here is a post with some more inside-insight into how we think as VCs:
[http://navfund.com/blog/venture-capital-5-tips-on-how-to-
nav...](http://navfund.com/blog/venture-capital-5-tips-on-how-to-navigate-the-
vc-gauntlet)

5\. And here is how to find out if your VC really has money to invest.
[http://navfund.com/blog/so-you-have-a-meeting-with-a-vc-
are-...](http://navfund.com/blog/so-you-have-a-meeting-with-a-vc-are-you-
meeting-for-dough-or-just-for-show-5-ways-to-find-out)

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staunch
The difference between a live prototype and a quirky working product is very
fuzzy. Intelligent people can easily disagree. What's a good self-test?

How is quitting a very high paying, very stable, job for a much lower salary
at a company that might not make it not taking a big risk?

A VC telling someone to use their savings? Why would someone pay for salaries
and servers and then go to a VC later? The whole point of VCs is for them to
take on the major financial risk in exchange for a large chunk of the company.

~~~
answerly
>Why would someone pay for salaries and servers and then go to a VC later?

We did this exactly. The investment gave us capital to out-pace our organic
growth once we had shown that the business had potential at a small scale.

There were two great benefits:

1) It forced us top figure out how to generate revenue from our business very
early on.

2) Our valuation ended up being much higher than it would have been earlier in
the company's lifecycle.

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btilly
The obvious bias in this article is the assumption that you will want to raise
money from a VC at some point. Not everyone should.

The biggest reason not to raise money is that most of their investments go
sour, so they need the others to hit it out of the park. However swinging for
the fences carries additional risk. Furthermore focusing on big enough
opportunities to give the investors the return they are looking for may
prevent you from going after perfectly good opportunities. Becoming a $20
million company may not have been your initial goal, but isn't a bad outcome
either. And a viable company of that size may find opportunities to grow
organically later.

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gruseom
What does he mean here?

 _One simple piece of advice. If you have TWO offers of financing, the terms
you end up with will be MUCH better than if you take the first offer, or only
have one offer._

~~~
staunch
He's just saying that you can leverage the two investors against each other,
letting them fight over who's willing to give you the better deal.

~~~
btilly
In addition to that, VCs are herd animals. The knowledge that another VC is
interested makes it easier for the other VCs to believe that you're hot.
(Similar to the article yesterday about hot supermodels.)

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atiw
And very similar to high school/ college (undergrads?). I wonder if that's the
reason charismatic founders end up succeeding.....Jobs, Zuck.....come to mind.

