5 Things To Avoid When Raising Money For Your Startup

Of course, there are a lot of things you need to do when you’re trying to raise money for your startup. But there are also a lot of things you want to avoid. If you’ve landed a meeting with a potential investor, you don’t want to blow it. Avoid the following 5 “don’ts” and you’ll be on the right path to making a favorable impression:

1. Don’t raise more money than you will need. You may be tempted to think more is better when it comes to raising capital, but actually this is not true. Of course you’ll want to build in a little cushion, since nothing ever goes exactly according to plan in startup land, but don’t be tempted to create a huge cushion. We’ve seen time and time again that capital efficiency (that is, raising what you need and no more) is a more telling indicator than capital access of your startup’s success. In other words, it’s what you do with your money — not how much you get — that determines your success.

While the amount of capital you’ll need is dependent on the specifics of your company (e.g. your company type/stage), capital efficiency will stand you in good stead regardless. With less capital it’s harder to scale, and that’s a good thing. Scaling too soon forces you to grow and make decisions before your company is ready. Expectations are lower with less capital. Your milestones will be more manageable.

Also, larger amounts of capital lead to unnecessary dilution at a lower valuation. Conversely, smaller amounts of capital allow you to preserve more ownership—and can lead to higher valuation in future rounds.

2. Don’t talk to investors who don’t traditionally invest in your space or stage of development. If an investor has no history of investing in your space or working with companies at your stage of development, don’t go there. If they’re not familiar with your space, there’s just too big of a learning curve. You’ll be working overtime trying to sell them on the value of your offering.

Likewise, there are two major downsides to working with a potential investor who doesn’t have experience with companies in your development stage. First of all, without a relative benchmark, they may have expectations which are unrealistic for your startup. The may want to see you hit milestones which your company is just not ready to hit, or may push you to scale before you’re ready. Secondly, investors offer more than just money. They offer support, wisdom, and connections. So you want to find an investor who will be a valuable member of your growing startup eco-system, starting from wherever you are.

3. Don’t talk to investors who have invested in a company that is a competitor in your same space. This may seem to contradict my previous statement, but it’s just finessing the point. While you don’t want to work with investors who aren’t active in your same space, there’s no sense in talking with an investor who has recently invested in one of your competitors. Many investors will avoid funding competitors, but you can’t depend on this. An investor’s resources run only so deep. You don’t need a built-in conflict of interest getting in the way of your growth.

4. Don’t fail to do your due diligence on an investor prior to meeting them. Underscoring my previous points, you’ll need to do enough research to know what space and company stages the investor has experience with and what specific companies the investor has funded (keeping an eye out for your competitors). Look out for investor activity: has the investor recently made any investments? You also want to know the person behind the investment: who are they? If you can speak with other entrepreneurs they have backed, that can be a helpful way to learn more about investors personally and figure out if they are someone you can work with. If you don’t know this ahead of time, you are just wasting your time and theirs.

5. Don’t wing an investor meeting. If you’re meeting with an investor, it’s never just a casual chat. You are there to pitch. Have your pitch deck ready and be prepared to present it. See my previous post on Pitching Made Perfect for details on exactly what should be included in your pitch deck. Be ready to answer questions—and if you can’t answer a question on the spot, make sure you follow up.

If you can steer clear of these 5 “don’ts,” you’ll be demonstrating to potential investors an understanding of, and a respect for, the funding process. Observe the protocol and you and your company will be in good position to earn reciprocal respect from potential investors.

This post originally appeared on the author’s blog.

David Ehrenberg is the founder and CEO of Early Growth Financial Services, a financial services firm providing a complete suite of financial services to companies at every stage of the development process. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.

The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.

Why You Shouldn’t Learn To Code For Your Startup

I get emails like this one all the time:

I am wondering if I could ask for help for a friend. Mike, a good friend of mine, has been working on a startup idea. …He is looking for really great co-founding developers who can help him build out the product in a short period of time. I am wondering if you could tap into your network for leads. Many thanks in advance!

I wish I could help. It can be very difficult for a non-technical entrepreneur to find a technical co-founder if he/she doesn’t already have friends who code. And these days, just about everyone would tell Mike to skip the talent search and learn how to code himself.

Journalists in TechCrunch, Business Insider, Fast Company and dozens of other publications, including VentureBeat, write frequently about how you, as a non-technical founder, are up a creek if you don’t learn how to code. Even Harvard Business School students are learning how to code – despite paying very good money to learn business skills. In short, if you’re starting an Internet company, you can’t go anywhere without hearing about how important it is to know how to code.

Silicon Valley has followed suit. In the last two years alone, online education companies have developed a variety of courses to teach programming skills. Companies like Coursera, Udacity, Udemy, Treehouse, Codecademy, EdX, and Lynda, are just a handful of the many companies serving the programming education market. For those who prefer to learn in person, there are now a wealth of choices in developer training camps too, including Hack Reactor, Coder Camps, Dev Bootcamp, and the Hackbright Academy. These camps hold class every day for several weeks, teaching basic front-end and back-end skills.

The real reason startups fail (hint: it’s not bad code)

On the surface, it would seem the solution for finding a technical co-founder is to become one yourself.

But you have to question whether turning non-technical entrepreneurs into developers is really the best solution for starting a company. Startups become successful when they have users and customers — and they die when they don’t. Tech startups don’t fail because they have poorly written code. If you look at TechCrunch’s deadpool of startups, almost all listed companies failed because they ran out of money. They didn’t have enough users to make their business model work.

I started my first company, Beat the GMAT, without knowing how to program at all. Didn’t matter: I built a loyal following of prospective MBA students for my blog first, which was focused on solving GMAT problems. Later, this audience became active participants in my first forums. Finally, I hired developers to build the most recent version of my site before selling it to Hobson’s. Had I focused on building the site first, I’m not sure that’s how things would have panned out.

Don’t get me wrong: Increasing the opportunities for people to learn is great, and those who want to learn how to program definitely should. But if you’re learning how to code merely to launch a startup, you’re wasting valuable time.

The economic tenet of comparative advantage suggests that people should become really good at their core skills, use them effectively to make money, and then hire others to complement their skills. So, if you are mediocre at acquiring customers and know nothing about programming, shouldn’t you work to become awesome at customer acquisition rather than become a bad developer? I would’ve expected Harvard Business School to understand this better than anyone.

Paying it forward

In the Valley, entrepreneurs and investors often talk about how so many seed startups fail because they can’t get enough customers to become profitable. But we shouldn’t just talk — we should do something. That’s why Elizabeth Yin and I started Hustle Con: to teach non-technical entrepreneurs tactical tips in acquiring customers to build a sustainable business. Others, such as Noah Kagan, have done the same in creating his course called “How to make your first dollar.” And, there are a smattering of meetup groups trying to teach marketing and sales for startups.

But we can do better. If you know something about lead generation, sales, and marketing, I encourage you to pay it forward and teach other entrepreneurs to improve their customer acquisition skills. And finally, to the would-be founders out there: Stop talking about learning how to code, and instead, start hustling.

Eric Bahn is the co-founder of Hustle Con, a one-day conference on July 9, 2013 in Mountain View, CA. Hustle Con features successful entrepreneurs who will talk about how they grew their companies from $0 to $5M in just a couple of years, how they raised money, and how they grew an audience before releasing a product. Join us with this special code to get 25% off: yec-hustler

Sequoia’s Aaref Hilaly believes everyone should know how to code.

5 Tips for Young Entrepreneurs Who Want to Be Taken Seriously

I was a 21 year-old entrepreneur when the dot-com bubble burst in 2001. Given the unprecedented volume of dying startups, investors and other business partners became less and less inclined to partner with new companies — especially those led by young founders.

But I felt compelled to win over potential investors, customers, and team members. If I didn’t succeed, neither would my venture.

Here are some of the tactics I used to help establish my credibility as a young founder, and grow my business in spite of my age:

Show others that you’re committed to the venture. Find visible ways to demonstrate your willingness to serve the company. I was always the first person at the office. The signals founders send speak louder than their words.
Present yourself like the most successful people in your industry. Given that most of our revenue came from brand managers and advertising agencies, I couldn’t show up to meetings looking like the college sophomore that I was. I ordered and wore bespoke dress shirts with my monogram on my cuffs. When advertising buyers started our meetings asking where I had my shirts made, the subsequent discussions usually went well. Don’t take this too far and spend beyond your means, of course, but first impressions still count.
Find creative ways to inspire confidence. My team was fired up when well-known leaders like Fred Hoar, the late VP of Communications at Apple, and Dana Summers, Nordstrom’s former VP of Marketing and CIO, joined our board. Sometimes I would ask board members and other well-known advisers to come in and share their lessons with my team. Most leaders love to give back to motivated young entrepreneurs, and this helps improve your credibility in a very noticeable way.
Set and deliver on objectives. Goals and guidelines will go a long way towards establishing momentum and lifting team performance.
Develop your character. While nothing builds trust faster than delivering results, nothing destroys it faster than a failure of integrity. As you see your dream grow from an idea to an enterprise, your opportunities to cut corners will multiply. Grow your character as you grow your business so the latter doesn’t crush the former.

Kevon Saber is the CEO of Fig, a mobile startup focused on personal well-being. Prior to Fig, Kevon was VP of Sales & Marketing at GenPlay Games, a mobile games developer he co-founded which has created fifteen games and $40+ million in consumer revenue. Kevon holds a BS in Finance from Santa Clara University and a MBA from the Stanford Graduate School of Business. Kevon and his family live in the San Francisco Bay Area.

Saber is a member of the Young Entrepreneur Council (YEC), an invite-only nonprofit organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.

Fueled By Cardboard: Kidpreneurs Kid President & Caine’s Arcade Spark Happiness & Entrepreneurship

I Know We Want Venture Capital But What Is It?

You may be shocked at the amount of startup founders and entrepreneurs that are too afraid to ask the question in the headline, “I know we want venture capital, but what is it”.

Well almost three years ago Silicon Valley Bank did a round table discussion led by Michael Hanewich, the East Coast Head Of Life Sciences/Venture Capital for Silicon Valley Bank.

The panelists were:

Bryan Roberts, Ph.D. — Partner with Venrock, a leading venture capital firm
Judith Elsea — Co-Founder and Managing Director of Weathergage Capital, a fund-of-funds and limited partner in venture capital investing
John Mendlein, Ph.D. — Chairman of Fate Therapeutics, an emerging company backed by venture funding.

In a six part video series they explain exactly what venture capital is, where it comes from, how it gets to entrepreneurs and how an entrepreneur can benefit, not only from the funding but from a long term commitment as well.

Roberts explains the venture capital process early on. Venture capital firms raise funds every 3 or 4 years from limited partners. Limited partners can come in a variety of forms. Wealthy families, foundation partners, insurance companies, funds of funds and other can be partners in VC firms. Now keep in mind we’re talking about Venture Capital here, not an “angel” round which is something totally different.

Partners in a venture capital firm have a “very long horizon” on dollars. They want to make money,but are fine, and perhaps better off, doing it over a long period of time.

Now, granted, this video series was produced three years ago before super exits like Instagram. However, Instagram is the exception, not the rule.

The purpose of the VC dollars is to get a company’s product developed and to market, and eventually to liquidity. Venture capitalists will then make money on their initial investment commonly through the company going public or a merger or acquisition of some sort. In rare instances the venture capitalists can make their money back through the company generating revenue.

Here’s the first video in the series:

See the rest of the video series here.

Scott Case: “If You Build It They Will Come, BULL SH!T”

Scott Case, Startup America, Startup Arkansas, Startup Tip,startup communities

Scott Case, CEO of Startup America addresses the audience at Think Big Arkansas, Startup Arkansas Kick Off (photo: NMI 2013)

If you’ve ever heard Scott Case, the CEO of Startup America and founding CTO of priceline.com speak than you are very familiar with the subject of the headline. Case often talks about the movie Field of Dreams and it’s most popular line, “If you build it they will come.”

A lot of startup founders have the same philosophy, they think that no matter what they do as long as they build it people will come. It goes along the same lines as growing organically, or magically.

Sure there are huge grand slams every now and then but most of them either come from founders with long pedigrees in startups or because they caught the backing of name brand venture capitalists and angel investors early on. For others, gaining traction requires marketing. For bootstrapped (or sneaker strapped) startups that often times means grass roots marketing, crowdfunding, and good ole donations.

When speaking, Case follows the Field of Dreams example with, “if you market it they will come” a valuable lesson.

In the video below he talks about his first big venture into entrepreneurship. He built a product in 1994 that was packaged software and still available to this day. He talks about buying a full page advertisement in the biggest industry publication for his product. The problem though, the phone never rang. That’s when he set out to learn marketing.

This is a valuable lesson for all startup founders and the video is worth watching. Case was delivering the keynote at the recent Think Big Arkansas event in Conway Arkansas, a similar message to the one he delivered the week before that in Atlanta and the week before that in Memphis at everywhereelse.co The Startup Conference.

In talking with Case we discussed “canned speeches” and how I’ve personally seen Case speak over 30 times in the last year. The thing about him though, is that he doesn’t do the same canned speech at every event, but he often resorts to the Field of Dreams story, because it’s not a valuable lesson, but the most valuable lesson.

Now go watch this hilarious video from the Startup Arkansas kick off.

We’re on the sneaker strapped nationwide startup roadtrip part deux, find out how you can help here