Comment Funding & Building a Startup (Score 3) 262
Take a look at incubator homepages for suggestions as to what a business needs.
http://idealab.com
http://ecompanies.com
I disagree with a few points.
1) Unequal founders - Beginners often want equal percentages. Hogwash. Checkout venture capital homepages for typical percentages.
http://benchmarkcapital.com
http://thestandard.com
2) Full business plans are not always needed at the early stages. However, she adds, "business plans are becoming less and less crucial. It's all about execution and how fast [the founders] can move." The reason? "It's because the world is moving so fast. We want to see an executive summary and a marketing plan; I need to know what the costs are because the revenues are totally fictitious." Besides, Comaford notes, business plans change so frequently that some are almost outdated by the time they're drafted.
3) Decent venture capitalists fund maybe 1% of their offers (pre-screened). Maybe 1-2 million internet ideas being shopped for money today. Become better informed about venture capital mechanics.
Look at CMGI, ICGE, Draper, etc...
http://www.drapervc.com/CurrentPortfolio.html
Even after the pickiness of VCs,
Maybe 15% of VC-funded companies are successful.
Raise this to 50% for CMGI-funded companies.
Small Businesses - 90% fail within three years (due primarily to cash flow problems).
Even 14 of 15 of penny stock IPOs sink.
Some early stages of the startup company hierarchy.
1) $50,000-100,000 small business, home business
2-5) $200,000-2,000,000 idea (2-4 people)
- $100,000 annual revenues, $10,000 profit (after salary).
- P/E ratio of 50!
- Job of early people is to build this idea into stage 2.
- Spend as little money as possible
- Assemble management team, make sound business model & strategy
- Write executive summary of business plan
- Answer all critical questions
- Does NOT mean do 100% market analysis/research.
6) $5,000,000-10,000,000 idea/company (5-15 people)
- Seed Money:
Better - $500,000 - $1,000,000 for 5-15%
Typical - $1,000,000 - $2,000,000 for 20-40%
Worse - $1,000,000 - $4,000,000 for 40-60%
- Finish business plan for 1st stage funding
- 3 months to get company to next stage
- Spend money as fast as necessary to move quickly.
- Take as little money as you really need (for quick expansion).
- Ask for money (when you don't need it) to get powerful people on your side. Make connections.
8) $20,000,000 - 50,000,000 company (10-50 people)
- 1st Stage VC $1,000,000 - $10,000,000 for 10-30%
- Try to get funding from well-known VCs: CMGI, Draper, etc..., even if you get less.
- Proof of concept.
- Buy up competitors.
- Hire professional CFO/CTO.
- Staff big-name board of directors.
- Make strategic alliances and partnerships.
10) $100 million - 200 million company (50-200 people)
- 2nd Stage VC $20,000,000 -$100,000,000 for 20-50%
- Buy up more competitors and allied companies.
- Expand to 300-400 people. Need headcount for IPO.
- Hire big-name CEO/Chairman.
12) $500 million - 2 billion (300-600 people)
- "Small-cap company", maybe a penny stock
- IPO $20,000,000 -$500,000,000 for 10-30%
- B2bstores.com (BTBC) to IPO for $28 million (2/7)
- Palm (PALM) to IPO for $345 million (2/28)
Advice:
1) Connections. A decent business idea with good connections often beats many great ideas. Use funding sources, lawyers, and accountants for their connections and ability to help your company.
2) Management Team. Totally crucial. Find people with real startup experience as advisors and/or management team. Experienced CEOs/managers can do more with 40 hr employee work weeks than newbies can do with 100 hr weeks. Experience tells you what NOT to do.
3) Communication. Between team members.
4) Community. Use CEO resources in your area. In LA,
http://directors.org
http://www.digitalcoastweekly.com/
In NY, check out Silicon Alley,
http://siliconalley.com/sa/events.cfm
http://www.atnewyork.com/
http://www.siliconalleyreporter.com
You Bay Area guys have it easy... ;-)
Other Good Articles:
Stuff to watch out for when starting
http://www.thestandard.com/article/display/0,1151, 9214,00.html?nl=int
How much to pay employees
http://www.thestandard.com/metrics/display/0,2149, 1115,00.html
Business plans - are they necesssary?
http://www.thestandard.com/article/display/0,1151, 9226,00.html
http://idealab.com
http://ecompanies.com
I disagree with a few points.
1) Unequal founders - Beginners often want equal percentages. Hogwash. Checkout venture capital homepages for typical percentages.
http://benchmarkcapital.com
http://thestandard.com
2) Full business plans are not always needed at the early stages. However, she adds, "business plans are becoming less and less crucial. It's all about execution and how fast [the founders] can move." The reason? "It's because the world is moving so fast. We want to see an executive summary and a marketing plan; I need to know what the costs are because the revenues are totally fictitious." Besides, Comaford notes, business plans change so frequently that some are almost outdated by the time they're drafted.
3) Decent venture capitalists fund maybe 1% of their offers (pre-screened). Maybe 1-2 million internet ideas being shopped for money today. Become better informed about venture capital mechanics.
Look at CMGI, ICGE, Draper, etc...
http://www.drapervc.com/CurrentPortfolio.html
Even after the pickiness of VCs,
Maybe 15% of VC-funded companies are successful.
Raise this to 50% for CMGI-funded companies.
Small Businesses - 90% fail within three years (due primarily to cash flow problems).
Even 14 of 15 of penny stock IPOs sink.
Some early stages of the startup company hierarchy.
1) $50,000-100,000 small business, home business
2-5) $200,000-2,000,000 idea (2-4 people)
- $100,000 annual revenues, $10,000 profit (after salary).
- P/E ratio of 50!
- Job of early people is to build this idea into stage 2.
- Spend as little money as possible
- Assemble management team, make sound business model & strategy
- Write executive summary of business plan
- Answer all critical questions
- Does NOT mean do 100% market analysis/research.
6) $5,000,000-10,000,000 idea/company (5-15 people)
- Seed Money:
Better - $500,000 - $1,000,000 for 5-15%
Typical - $1,000,000 - $2,000,000 for 20-40%
Worse - $1,000,000 - $4,000,000 for 40-60%
- Finish business plan for 1st stage funding
- 3 months to get company to next stage
- Spend money as fast as necessary to move quickly.
- Take as little money as you really need (for quick expansion).
- Ask for money (when you don't need it) to get powerful people on your side. Make connections.
8) $20,000,000 - 50,000,000 company (10-50 people)
- 1st Stage VC $1,000,000 - $10,000,000 for 10-30%
- Try to get funding from well-known VCs: CMGI, Draper, etc..., even if you get less.
- Proof of concept.
- Buy up competitors.
- Hire professional CFO/CTO.
- Staff big-name board of directors.
- Make strategic alliances and partnerships.
10) $100 million - 200 million company (50-200 people)
- 2nd Stage VC $20,000,000 -$100,000,000 for 20-50%
- Buy up more competitors and allied companies.
- Expand to 300-400 people. Need headcount for IPO.
- Hire big-name CEO/Chairman.
12) $500 million - 2 billion (300-600 people)
- "Small-cap company", maybe a penny stock
- IPO $20,000,000 -$500,000,000 for 10-30%
- B2bstores.com (BTBC) to IPO for $28 million (2/7)
- Palm (PALM) to IPO for $345 million (2/28)
Advice:
1) Connections. A decent business idea with good connections often beats many great ideas. Use funding sources, lawyers, and accountants for their connections and ability to help your company.
2) Management Team. Totally crucial. Find people with real startup experience as advisors and/or management team. Experienced CEOs/managers can do more with 40 hr employee work weeks than newbies can do with 100 hr weeks. Experience tells you what NOT to do.
3) Communication. Between team members.
4) Community. Use CEO resources in your area. In LA,
http://directors.org
http://www.digitalcoastweekly.com/
In NY, check out Silicon Alley,
http://siliconalley.com/sa/events.cfm
http://www.atnewyork.com/
http://www.siliconalleyreporter.com
You Bay Area guys have it easy...
Other Good Articles:
Stuff to watch out for when starting
http://www.thestandard.com/article/display/0,1151
How much to pay employees
http://www.thestandard.com/metrics/display/0,2149
Business plans - are they necesssary?
http://www.thestandard.com/article/display/0,1151
