The Seed Capital for Startups Blog

Revenue-Based Financing: How to Raise Capital With Revenue Royalty Certificates

How Deal-makers Close Investors

Revenue-based financing is becoming the hot new way to provide capital to companies. I'm proud to be the first person to ever provide entrepreneurs with a tool for raising money with this type of deal structure.

I have now just released version 3.0 of How Deal-makers Close Investors. It shows you how to approach capital raising like a deal-maker as well as how to utilize revenue-based finance with a Revenue Royalty Certificate. There is nothing sadder than someone with nothing but a business plan and Powerpoint who can't understand why people aren't throwing money at their venture. Don't be one of these time wasters.

Here's more information on how to be successful at raising capital from private investors and business with revenue-based financing.

Deal-Killers: How to Turn Off Angels Investors

How to Close Angel Investor

Get your copy of How Deal-makers Close Investors right now. It will help you stand head and shoulders above other capital chasers in investors' eyes.

Sometimes these instruments are called Revenue Participation Certficates.

How to Raise Startup Capital. Or Not?

Raising Startup Capital for the Next Facebook

This short little video is packed with lessons for startup entrepreneurs.

(source: www.antiventurecapital.com)

For international viewers: http://www.xtranormal.com/watch/7739783/

An Amazing Discovery in Raising Capital

Raising Venture & Angel Capital and Distance

One of the amusing (and sometimes exasperating) things that you notice as you get older is that people keep "discovering" the same obvious points year after year, and when they do they act like Christopher Columbus spotting land in the West Indies in 1492.

Last year, a research team at the University of Maryland B-School discovered that venture capitalists don't really read business plans. If they do look at them at all, it's to read the executive summary and management team section to see if any credible people are part of it. If they are still interested, they will then initiate a series of meetings that take place over months in most cases before making a decision. So the lesson here is don't put too much faith or money into your business plan. Smart investors know that they are as objective and accurate as a personal ad on a dating site. I first learned that hardly anyone actually reads business plans back in the late 1980s.

Now another academic has made yet another discovery which will send shock waves through the startup world. Are you sitting down? Here is it: investors don't like putting their money into companies that are more than an easy car commute away. In many cases, this means that any opportunity outside of a 25 mile radius gets rejected. In cases where an investment is made outside this radius, it's usually of a smaller size according to the study.

“We saw that visiting a company day to day made a real difference, and investors were willing to write bigger checks if they could do that,” he says. From Tian’s research, venture firms don’t necessarily abide by the so-called 20 minute rule, where venture capital firms typically want to invest in startups located within a 20 minute drive of their office, but a greater distance does make a VC hold on tighter to its purse strings. (source)

If the reasons why aren't obvious, allow me to spell them out for you. Investors, both VCs and angels, like to meet face-to-face on a regular basis with the people running their startups because their money is at risk. If an angel investor cuts a check for a new telehone system, he likes to be able to drop by and see that the money was spent on exactly that and not on a vacation for the CEO. Moreover, startups stumble and falter all the time. It's an accepted part of the game. When it happens investors want to be able to meet with the mangement team face-to-face to work out a solution. Sometimes people have to fired or hired and the investor wants a say in the matter. That's all hard to do if the company requires a plane ride to visit.

The lesson here is that if you are seeking capital you need to be near the people with money in the vast majority of cases. If you're not near them, consider moving. If you're not willing to move for the sake of your business then you may not be as committed to its success as investors would like see.Investors will simply assume that real agenda is to create a nice comfy life-style business for yourself with their money.

The worst thing anyone can do is hope that investors from another country will wire them money.

So yes, geography is a major factor in your ability to raise money from investors.

 

 

 

How to Raise Startup Capital: Lessons From Deal-makers

How to Raise Startup Capital: Lessons From Deal-makers

From working with entrepreneurs since 1986, I have noticed one glaring problem most have. Most have no idea how to sell their startup or deal to investors. Instead they just write a business plan and shotgun it out to everyone. Then after a few months, when no one has jumped on it, they start complaining that investors are "too stupid" to see how wonderful the investment opportunity really is.

What rookies fail to take into consideration are tangible economic incentives and psychology. Deal-makers, on the other hand, understand how to offer short-term economic incentives made all the stronger by appealing to psychological needs.

Would you like to learn how to put together B2B deals? If you answered, yes, get a copy of How Deal-makers Raise Capital.

Order it today before the price goes up.

How Deal-makers Raise Capital

Or get the full manual on creative startup financing.

Raising Capital: 88 - The Narrow Road: A Brief Guide to the Getting of Money

88 - The Narrow Road: A Brief Guide to the Getting of Money by British billionaire Felix Dennis

Felix Dennis' long-awaited 88 - The Narrow Road: A Brief Guide to the Getting of Money is finally out.

There's no information on this new book on raising money on Amazon yet, but even if it's only half as good as his other business classic, it will be a worthwhile addition to any entrepreneur's library.

I am eagerly looking forward to reading this one. Felix Dennis is an inspirational figure in the Billionaire Strategies Course.

Get more information on 88 - The Narrow Road: A Brief Guide to the Getting of Money.

Free Seed Series Documents

Free Seed Series Documents

If you're looking for seed capital, you will need the right deal documentation.  You can find free samples of the seed capital documents here. These are Word Docs.

Series Seed Form COI 

Series Seed Form SPA 

Series Seed IRA 

Series Seed Term Sheet

Startup Capital: How it's Really Raised

Startup Financing: How it Really Works

Let's look at the typical stages in a successful company's financings. We'll start with the last and finish with the first. Although there are rare exceptions to this sequence, in most cases it looks like this:

-The IPO
This is the big pay-off at the end of years of hard work. It means liquid stock selling at, hopefully, a high P/E multiple. (The second best alternative is to be acquired by a large company such as a member of the Fortune 1000.)

-Venture Capital C-Round
The IPO is now in sight and the C-round is used to "fatten the pig" as much as possible in addition to preparing the company for it. Often this preparation includes replacing management with C-level officers who are known to and respected by Wall Street.

-Venture Capital B-Round
Wall Street is starting to take notice of the company. Therefore, the VCs want to maximize its forward momentum.

-Venture Capital A-Round
VCs step in when the business looks like it has potential for an IPO or acquisition a few years down the road.

-Angel Round
Angels come in with money when you have started selling. They jump aboard because you now have tangible proof of concept. You're finally walking your talk. It's no longer all just hot air coming from the founder. Be honest, talk is cheap.

-Seed Round
At this stage you have no more than an idea. You are going to build the next Facebook or Google or Apple...only it will take a year or two of work before there is something that can be sold. Or maybe it's a dull little business which excites only you?

So, who comes in at this stage if you should be lucky enough to attract any money? The answer is the "3Fs", otherwise known as Family, Friends, and Fools. Yes, this means your parents and rich frat buddies from your days at Harvard or Yale. What's that? Your family is not wealthy and you didn't attend an Ivy League college? In that case, you are going to have to finance your seed stage the most common way: with a day job.

Welcome to Planet Earth. That's how 99% of startups get through the seed stage.

I am providing this information because so many people post online requests for funding to cover 2 to 3 years of coding or R&D. Then when they are ignored, they get angry.

If you are realistic about what types of scenarios attract investors, you won't get angry. Instead you will work to create an opportunity that will be attractive to investors at every stage.

If you think that you are going to attract money to cover your living expenses and provide a bit of fun money while you code or do R&D for 2 or 3 years, you are in for nothing but frustration.

For Profit Angel Networks: Lancing the Boil

Should You Have to Pay a Huge Fee to Pitch an Angel Network's Investors?

The controversy over angel investor networks which charge struggling cash-strapped entrepreneurs anywhere from hundreds to thousands of dollars merely for the privilege of presenting their opportunities is finally picking up a head of steam. And it's about time. Many of these networks attempt to charge unconscionable fees while offering no guarantees of any kind. Basically their propositions make about as much sense as someone telling you to take your last $1000 or $3000 and put it into lottery tickets.

It really wasn't all that long ago when entrepreneurs and investors gathered monthly for presentations and networking. Normally, the venue was a meeting room booked for free at a university. At most, attendees might have been asked to pay a $5 admission fee to cover the cost of the coffee and donuts.

The system worked because both sides got what they wanted. The investors who bothered to attend after a full day at the office were business people seriously committed to finding young companies to invest in. The entrepreneurs in turn knew that they were going to meet people who could help them with either money or good advice, so they came prepared.

Everybody won.

Then with the advent of the dotcom boom a new animal started to rear its ugly head. This new network charged fees to entrepreneurs. At first the fees appeared reasonable. In my neck of the woods, it was around $125 to $200, when it wasn't free. But the fees started exploding after the dotcoms turned into smoking craters. Now you regularly hear complaints from founders about being asked to pay $750 to $3000 and more just to present a 15 minute pitch.

It really has become outrageous.

Rule #1 of capital raising: never pay up-front fees to anyone who claims to be able to help you find money.  Stick to this rule and you will avoid the tears.

Now finally this ugly boil looks like it's at the bursting point. Every day I find more discussions over this practice. Even Digg's founder has chosen to discuss angel networks which charge fees.

Raising Startup Capital: Lessons from a veteran entrepreneur

Automotive industry entrepreneur Malcolm Bricklin is on the hunt for money for his latest venture. This is an interesting documentary by the son of an aging entrepreneur who just won't quit.

This is the notorius Bricklin. One of the ugliest cars ever built.

Warning: Salty language advisory.

How to Close Angel Investors

How to Kill the Angel Investor "Deal-Killers"

Have you experienced the frustration of dealing with a self-proclaimed "interested" angel investor who you just cannot close, no matter how hard you try or how many months go by? If you have, read on.

After writing last month about angel investment "Deal-Killers," I received a slew of emails and calls from frustrated and angry entrepreneurs unable to close deals with angel investors. Many of  them had invested more than a few months talking to investors who had repeatedly expressed a commitment to invest. Yet every attempt at closing the deal had ended in frustration. Some of the angel investors finally expressed a reluctance to invest at this time while others have just dragged their heels and avoided the subject. Either way, the result is the same. The frustrated entrepreneur can't get the money he or she desperately needs for their company.

As pointed out in the previous post, the resistance often stems from the angel investor's uncertainty over how they will get their money back plus any profit that may have accrued. To be honest, their fears are warranted. Minority shareholders in a small private company (i.e., a chronically cash-strapped one) are at the mercy of the majority who can easily find a hundred better uses for limited capital than buying out investors--especially the passive variety. Both sides always have a convincing rationale. The minority investor feels that it's time he was finally rewarded for taking a gamble on the company at an early stage. Meanwhile the majority are convinced that if they just hold onto that money for another six or twelve months, it will allow the company to hit a new plateau which will insure its long-term success.

Who is right? Probably both sides to a degree.

With this problem in mind, I developed a tool for raising money that addresses the concerns that all angel investors have about investing. Indeed, it tackles them head on. In a nutshell, How Deal-makers Close Investors demolishes the big deal-killers:

-The inability of investor and founder to bridge the valuation gap.

-The investor uncertainty over the chances of a profitable liquidity event occuring.

-The investorss fears that majority shareholders will run roughshod over him.

Closing Angel Investors With Revenue Royalty Certificates (RRC)

Revenue-based financing is finally emerging from the shadows and I have been one of its pioneers.  This product consists of a book in pdf and an accompanying spreadsheet in Excel. Contained within the package is all the knowledge you need to be able to utilize this innovative financing instrument to close the deal with angel investors. The instrument, called a Revenue Royalty Certificate (RRC) or Revenue Participation Certificate, is an off balance sheet loan which clearly demonstrates to the investor how and when they will recover both their principal and profit while also potentially receiving an equity stake in the company.

However, the RRC is not just about benefits for the investor. This instruments also offers substantial benefits to the entrepreneur. I am referring to freedom and autonomy here. With an RRC, the investor is unlikely to interfere with your management style as long as the payments are being made on time. The RRC is a win-win for both parties.

There are a few more bonus lessons contained within which reveal how sophisticated financiers select their target investors and do deals.

Get more information on how you can raise capital with a Revenue Royalty Certificate.

Do yourself a favor and stop spinning your wheels trying to do it the wrong way.

Space I can recover. Time, never. - Napoleon Bonaparte