With all startups, one of the most important things to try and figure out is how to get funding. There are a variety of ways, but perhaps the most common one is to seek out funding through venture capitalists or angel investors. But just how are you going about in asking these capitalists for money? And how exactly has this past year been for startup funding during a time of recession? These questions and some others were answered during last Thursday’s Investor Outlook session hosted by Dealmaker Media and Manatt, Phelps & Phillips, LLP in San Francisco.
Speakers this evening included:
- Jeff Clavier, SoftTech VC
- Jonathan Ebinger, BlueRun Ventures
- Mitchell Kertzman, Hummer Windblad Venture Partners
- Brian Pokomy, SV Angel
What follows are questions and paraphrased answers posed by moderator Craig Miller of Manatt, Phelps & Phillips, LLP:
What’s can startups do to get a competitive advantage in order to be funded?
Brian Pokomy: It’s important to get 5-6 referrals a day. We look at the source of the referral and whether the startup is in the space that we like. We also look primarily at the team. The biggest factor is how much interest you can generate around financing. If we like a company and decide to meet them, we need to show interest right away or risk missing out.
Mitchell Kertzman: We look at young companies. Ultimately we’re “reality-based investors” — we evaluate the market need. We invest in core technologies with intellectual property. Need to solve a problem that customers & prospective customers want solved and are willing to pay. We’re big believers in highly automated and analytical marketing with inside sales. Believe in subscription-based model pricing. Every company can be a stand-alone company – worth $100 million.
What problems need to be solved?
Jeff Clavier: We’re interested in investing in companies that answers the question “what’s the problem?“, but are also lacking an understanding on how to get the money from their customers. We’re willing to take risks on those that have a problem figuring out their monetization strategy. On the enterprise side, there is a “customerization” belief. Companies are always trying to figure out engagement – how do we get people to visit the site and then be engaged?
How can startups get funding in 2010?
Jonathan Ebinger: We’ll look at the individual and see if they have a good head, but aren’t bullish to reject advice. It’s a matchmaking process to find the right investor. Make sure that the relationship is sound – don’t just take the money.
What do you expect from social media in 2010-2011?
BP: I believe that location-based technology will play a big factor. Most trends will continue to stay the same, but there will be more mobile technology.
What about valuation?
JC: Valuation is a tricky formula. I see them dropping down in Q1 and Q2. Way more investors willing to come in than are needed.
MK: VCs are often wrong. Every great VCs have a list of startups that they’ve all passed on. From enterprise market, my firm doesn’t chase price, unlike in consumer market. If you let your post-valuation money get too high in the A round, you’ll scare away investors in B round.
What’s NOT hot in 2010?
JC: Someone who says they have a better implementation of an existing startup but with a smaller tweak of the system. Needs to be thousands times better.
JE: User-generated content has run its course and mobile businesses is done. Mashups are emerging & incremental improvements aren’t going to happen. Very bullish in mobile technologies.
If you had $1M, what problem you want solved?
JC: If I had $1 million, I’d want to invest in startups that are cloud-based, focus on gray markets and also crowd-markets. I like the search and mobile space. Strategy is to have white space between company so there’s not a lot of competition.
On reaching venture capitalists, what should startups include in initial email?
Email should be 1-2 paragraph with link to demo. Give enough of the pitch to get to the first meeting, then enough to get to the second meeting.
Three things to remember when trying to break through:
BP: Launch something, bootstrap to get a live product to show some traction/usage & get multiple referral sources. Find people to have face-to-face conversations. The biggest factor that we look for is the reference source.
JE: Get recommendations & referrals. Make sure that you do your homework on who you’re pitching to get funding.
MK: Understand that as an entrepreneur, you have a lot of power – VCs need you for business. Do some research in the firm to see if they invest in your space. Don’t send an email to EVERY partner in a firm. Look at partners and find who they invest in – look for one invests closest to you. Have you raised money before & what are you wanting now? Don’t be offended by a short email from VCs.
Questions from the audience:
Q: Do we need 10 page business plans?
A: No…you should have a 10 page PowerPoint presentation, not a business plan. You will need backup references though. Anything more than 15 slides is too much in first meeting. Show 1 page summary. Business plan to be discussed in other meetings.
Q: When should you approach a lawyer?
A: From the beginning. You don’t want to screw up your company. Get your paperwork done right, not cheap.
Closing thought: What are you excited about 2010?
JE: A post-iPhone world. Looking forward to cross-platform ubiquity.
JC: New platforms being developed.
BP: Real-time data and mobile.
MK: Enterprise infrastructure.
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