This week I spoke at the Digital Shoreditch Festival in London. I made a presentation on “How to get through a VC transaction?” which was aimed at companies which have had angel funding and now wish to proceed to a larger VC institutional funding - a natural progression for many. My presentation (which I am happy to email to anyone who wishes) focussed on the differences an Angel backed company will encounter when they go to VCs for funding as opposed to angel investors.
I was happy to chat with several interesting CEOs of start-ups afterwards including David Kosky of WorkLife and Alexei Poliakov of Locomizer.
First of all timing: you don’t want to go to VCs for funding until you have enough commercial traction to command a valuation that limits dilution. More importantly in the first instance, you need to be at a stage to command any interest from the VC at all. So an angel backed company needs to ascertain their Valuation Inflection Points (VIPs) and monitor progress on them over time to then know when they are ready for VCs. Typical VIPs are commercial product readiness, first commercial revenue, users over a certain number, cash flow positive and (best of all) bottom line positive.
A company needs to know the differences in the process you went through with Angels and the one you now face with VCs. Major differences will be seen around:
“You set the price - I’ll set the terms”
With the advent of many smaller VC funds – there is now more capital for series A so you may be able to get VC attention earlier than a couple of years back; however, just because a VC is small (actually most likely because) they will still hammer on these terms, unless you have something compelling that is being chased by the investment market.
I'll will write more about the following in my next blog:
White Lake through our Virtual CFO London service offer growth companies a subscription service to cover strategic and control financial issues plus capital raising all in one from a team of ex-VCs.
In my years of experience as an ex-VC, a founding team can become distracted by the often time-consuming fundraising process and not spend enough time developing their core product and gaining traction with potential clients.
Our goal with this service is to cover the range of emerging startups that need more than a simple accountant, but have not scaled to the degree to be able to integrate a full-time CFO and pay monthly brokerage fees for fundraising.
By John Rowland, Managing Partner