Entrepreneurs are generally frustrated with how difficult it is to raise funds. Much of this frustration is directed toward Venture Capitalists; they seem to fund so few opportunities, their criteria for investment is somewhat mysterious, they have a reputation for tough negotiation and low valuations, etc.The purpose of this note is to give you insight into how a venture capital company works, how its partners are compensated and why they operate the way they do. Continue Reading »

There is a good article by Al Schneider, a senior person at both Pasadena Angels and TCA, that was recently posted on SoCalTech.com.   Check it out:    How To Value Your Startup.

On the 22nd I will be talking about business plans and fundraising for the 3rd time with the Tech Coast Venture Network in Orange County. I thought it would probably be appropriate to update the presentation a bit…

Attached is a revised version of the presentation I’ll be giving.

I hope you find it helpful!

Business Plans and Fundraising

I sat on a panel today, “Business Pitches that Hook Investors”. It seems all of the panelists took the position that you should skip the long process of writing a business plan (at least as a fundraising tool). Several people in the audience asked for a copy of my presentation, you can find it in a previous blog post: Why You Shouldn’t Write a Business Plan.

As a side note, I will be giving a longer version of this presentation along with some new material at the Tech Coast Venture Network meeting this Thursday, May 22nd. Details of the event are at www.tcvn.com.

There’s been a lot of talk lately about investors laying low due to the recent slowdown in the economy. Looking closer at the numbers, it appears that there is a lot still happening.

Ben Kuo at SocalTech points us to the recent National Venture Capital Association (NVCA) study published just a few days ago. Though the amount of venture capital invested in southern California from Q1, 2007 to Q1, 2008 has decreased from $1.1B to $856M, the number of deals has actually risen! 93 companies were financed Q1 this year versus 85 last year.

Though valuations are lower and capital may be more difficult to come by, venture investors are still alive and well. Yes, exit markets are tightening up. Yes, the IPO market for venture baked companies seems to be in a drought.

However, keep in mind that there is a very distinct cycle to venture capital. Companies receiving their first round of institutional capital this year have a 3 to 5 year time horizon before they exit.  Don’t forget that several household names (i.e. Google, Paypal) “grew up” during downturns - just like the one we’re in right now.

“I don’t know what my business will look like three months from now let alone three years!”

Every entrepreneur hates the dreaded financial model. Just the thought creating one can cause heartburn, fatigue and endless discussion about the unnecessary burden put on entrepreneurs in order to raise money. Less-experienced entrepreneurs often will try to dodge financial modeling with claims that “our market is so big, you don’t need a model to convince yourself we have a great business” or “I’m too busy running a business to spend any time building spreadsheets”. But the reality is that if you’re going to raise money, you’ll need to build a detailed three to five year financial model. The surprising news is that the exercise of building a model will help you better understand your business and make you a better entrepreneur. Continue Reading »

In response to the blog post on “Venture Capital 101″ we got a question, “What is a typical rate on preferred returns? I had an investor ask for a 130% preferred return plus equity. Is this normal?”.

Returns and the related concept of valuation seem to be a good topic for a blog note so I’m responding here rather than in the comments. I’ll provide some background before answering the specific question. Continue Reading »

PowerPoint is a great tool. However, in an investor presentation it can hurt you more than it helps you. Investors watch pitches for a living, and over time, watching presentations gets boring and can even be annoying. If you’ve made many pitches to professional investors you know that, on average, you’ll get about 5 minutes or maybe 2 or 3 slides into your presentation before you will start getting interrupted. This phenomenon inevitably leads to a meeting where the entrepreneur tries to get the meeting “back on track” (to his well rehearsed PowerPoint) and the investor gets increasingly annoyed that his questions aren’t thoroughly addressed. Through trial and error, I believe I’ve come upon some good rules to follow and a good format to balance everyone’s needs and agenda. Continue Reading »

By Al Schneider (Vice Charmain, Pasadena Angels) and Joe Platnick (Director, Pasadena Angels)

The Pasadena Angels is a group of over 100 accredited entrepreneurial investors who provide early-stage financing and counsel to emerging companies located in Southern California. Pasadena Angels actively support funded companies with the human and financial resources to enhance their success, and typically serve as advisers and/or directors after funding. The Pasadena Angels invest in early-stage pre-revenue and low revenue companies in a broad range of industries, including but not limited to technology-based companies, that have the potential to build successful businesses based on sustainable competitive advantages in their markets. Continue Reading »