What I would do if I started today... And Why...

[Kak]

How do you go about finding VC? Living in the dallas area I'm a far cry from Silicon Valley. I've redid about series 1 etc but never actually done it.

What are the basics?

Silicon Valley is far from the only place with VCs. Not to mention most phones call Silicon Valley pretty easily if you wanted to go that route. Also airplanes can fly out there.

I don’t mean to sound like a smart a$$ but I’m sure a quick google search would yield you several VC firms in and around Dallas. Austin, 2 hours down I35 from you is probably the second biggest VC hotbed in the country.

I would pick up the phone... not email... and I would ask what kind of deals they typically do and if it looks like you could provide value to them and they can provide value to you... ask to come out and pitch.

The value MUST be BILATERAL. I can’t stress that enough. If you are the only one getting value out of this you won’t be raising any money.

 

[JByers210]

Thank you @Kak

I haven't been thinking big enough.

 

[Kak]

I understand the concept of finding investment to turbo charge growth, but aren't the hard lessons the essential parts of growing a business?

I had a small service company a couple of years ago. I move around $500k in sales in a few months. I never figured out a good hiring pipeline, and in the end that failure cost me a lot of money and forced my hand at shuttering. I don't know if having $500k would have solved that problem, but it would have more likely have just added months to a losing process.

That being said, that hurt bad enough that I've been scared to enter another business since, miserly hoarding cash to the tune of $100k+ for no good reason. Whenever I do find something worth obsessing over, I know that I will be very carefully estimating the risk.

Surround yourself with people smarter than you is my only real answer to this.

This to me is more a matter of having an incomplete plan and management problem rather than a problem from capitalization. Money isn’t going to fix every problem.

Having wise counsel can prevent problems.

 

[amp0193]

You are on to something there. First of all you have a working model. Since you've sold through a container already you can prove concept and profitability pretty easily. Add to that your product improvements, hopefully at zero or minimal incremental cost and you could absolutely raise money.

The good part for you is that the farther along in the business you get, the more you can prove the concept, the more you can prove the concept the less ownership you will have to trade for investor money.

Makes total sense, thanks. I think the position of my business, especially given the bright future of the market, and the lack of competition, puts me in a great place to start the investment conversations. I'll let you know how it goes!

Never underestimate what that money could do for you. You could be very hands on overseas overseeing the production or design. You could be using that money to invest in systems or processes that increase profitability or quality. Investor money makes you more solid in a scale situation.

I am 100% guilty of underestimating. My vision has been narrow. I have plenty of money from the sale of my last business, but never stopped to think about what I could do with even more.

I did however make what I titled an "investor guide" the topics were as follows (remember this was tailor made for my business, needs may vary):

Solid gold outline of topics. That gets me headed in the right direction with this.

CLEAR HONESTY WINS BIG!!!

Great tip. I think it'll be easy to be honest, as I'm not in a position of needing the money.

 

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[Guest06196]

I witnessed a @Kak style business today.

A couple of brand new minibuses park outside of my train station. They bear the official symbols of the state government so I always thought they are like normal buses, except being smaller & newer. When I approached them for a ride, the friendly driver patiently explained they're not part of the usual public transport system: They are government-licensed (the state official mark) Uber.

Basically, it's just like Uber-You download their app and it will handle the payment & pick-up. The only difference is they only stop at bus stops. Of course, they charge more than a bus but less than Uber.

In this business, the entrepreneur aspiring to be Kak would first come up with this great idea. Then hire a lobbyist to sell this idea to the government. (as Kak said, to convince government officials, tell them how you can make their jobs a lot easier and their wait for retirement is more enjoyable. I'd use cost-saving for the government. Better customer service, less waiting time for riders & environmentally friendly small cars. all cards to play during an election.) Once the buyer (government) is on board, find a venture capitalist who will put up the cash. The last step is easy. Hire a few drivers & minibus (or simply partner up with an owner in the transport industry). Get someone from Upwork to do the app and then scale up to other states.

So good to be Kak.

 

[Lucid Tech]

After having a long conversation with @G-Man about this over the weekend and having some major developments happening in my business, suddenly the idea of taking on capital doesn’t seem crazy and like I could use to it get some major action in my category.

Thank you @Kak for making this thread Rep++

For investment in the $100-500k range, do you recommend angel investors or VC?

Do you look for just cash or cash + value add (expert in your sector)?

In general, you are going to have a tough time finding VC interest in deals that size unless they are a smaller VC firm. The big names with several hundred million or a billion+ sized firm are typically looking at deals involving $1 million or more.

It's just math: even a 50x home run return on a $100k investment is only $5mm which is a drop in the bucket for a fund starting with assets under management in the nine figures.

Under $500k I've found angels to be your best bet. Above $1mm, you're in VC territory.

$500k-1mm seems to be a somewhat difficult range to be in, as you're too big for most angels but you're too small for most VCs. Usually better to either aim a bit higher, or find a way to get started with less. (Or find an angel with very deep pockets, or a consortium of angels, etc. There are always options.)

If you are set on professional investors in your 100-500k range, there are always startup accelerators that invest in the range you're looking for (just over 100k) while still providing access to lots of resources to propel you forward. Examples Y Combinator and Home - 500 Startups .

For your second question, value add is always a plus. If your round is oversubscribed and you can pick and choose your investors, you always pick the one(s) that have experience and connections in your area. If you don't have that option, well, a dollar is still a dollar no matter where it comes from.


Just my $0.02.

 

[JByers210]

Would you go about it this way if you were creating a product?

How would you summarize a good plan to get investors more likely to jump on board?

I'm currently selling two products on Amazon and flipping random stuff to make money... thank you for posting this.

 

[G-Man]

Tagging @Scot because you're at the point @Kak talking about in the first 3-4 posts.

Esp. RE: well capitalized product launch

 

[ironman150]

when someone has given me a 2 week notice, I cut them a check and show them the door right then and there. I send them off with my sincere best wishes. If they no longer want to be there, I don't want to prolong the pain of them leaving

This is GOLD...get rid of them ASAP. They no longer care about your company and should be shown the exit 10 seconds after they give notice....politely of course.

 

[randomnumber314]

I understand the concept of finding investment to turbo charge growth, but aren't the hard lessons the essential parts of growing a business?

I had a small service company a couple of years ago. I move around $500k in sales in a few months. I never figured out a good hiring pipeline, and in the end that failure cost me a lot of money and forced my hand at shuttering. I don't know if having $500k would have solved that problem, but it would have more likely have just added months to a losing process.

That being said, that hurt bad enough that I've been scared to enter another business since, miserly hoarding cash to the tune of $100k+ for no good reason. Whenever I do find something worth obsessing over, I know that I will be very carefully estimating the risk.

 

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[amp0193]

So @Kak What sort of "strings attached" can come with investment money?

Is it typically a loan with set payment terms?

Or is it just cash that you can spend as you wish, returning to them X% of Y results? Like, if the Y results never materialize, and the business folds, you're off the hook, and they're out the money?

 

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[Kak]

Great points @Kak

Just to chime in a few thoughts, as someone who's raised a bit over $3 million for my current venture.

You'll get a huge boost from the laws of Entry (raising millions is tough) and Scale (you can go big very fast) but you might lose out on Time and Control depending on how your business is structured. There are a lot of people on this forum who can travel 6+ months out of the year since their businesses are fully automated and they have no shareholders to answer to.

If I tried traveling that much for fun, my board of directors would crucify me before they fired me. Sometimes the grass is greener on the other side. Your mileage may vary.

Regarding when to start raising money, this is going to depend a lot on your previous track record of success. If your last name is Zuckerberg, Musk, or you are someone with a track record of building and selling companies you can raise money just with an idea. No prototype, no customers, no problem.

If you're in this thread, more than likely you're not there yet. In my experience the best time is immediately around the time you've gotten your first customer (if you're B2B or B2G). If B2C, maybe you have an MVP and initial set of customers with positive feedback and you can sell the vision of the hockey-stick growth curve.

This tends to be the point of highest optimism, and the message of hope & promise goes a long way. If you wait too long, you'll be judged on what you've actually done, but if you do it right away you can paint a picture of optimism that increases your valuation.

In our case, we had seed funding to build our prototype and were involved with a statewide grant to implement this in several hospitals.

Our message was: "We have {state grant} to be in {x, y, and z hospitals} and we separately are starting a pilot at {University}. We have these well known people behind our product and will soon start our full commercialization plan."

Bam, series A.

Good thing too, since the subsequent sales took longer than expected. After a couple months with no follow up sales, raising the same amount of money would have been far more difficult.

You don't want to be raising $ in the desert of desertion.

Nice post and viewpoint! Thanks for joining in.

 

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[natopotato]

Awesome topic Kak!

I know everyone will have differing opinions on whether or not to dilute your percentage of ownership to take on investors, but have you ever found yourself regretting taking an investment (and all the constraints that come with it)?

 

[WJK]

...My experience is that if you even have the faintest thought that the individual needs to go, trust your gut. Start making provisions to replace them...

To me, this is hardest part of management. Firing... And in my business, evictions -- putting people out on the street. But, this is all part of my job.
Also, over the years, when someone has given me a 2 week notice, I cut them a check and show them the door right then and there. I send them off with my sincere best wishes. If they no longer want to be there, I don't want to prolong the pain of them leaving. It's kinder to them and to me. Life goes on with or without them...

 

[SquatchMan]

Well capitalizing and going big go hand in hand, so I see how people landed there, but one is a cause and the other is an effect. So yes while this advice may seem like a bit much for some, I still think most people who truly set their sights on well capitalizing a venture can probably do it.

But hey, I prefaced this thread on the first post with the fact that this was just what I would do, not what people should do. They should absolutely know it’s a realistic option.

Was reading the story about Chobani and saw he borrowed money to start his business. It sold a billion dollars worth of yogurt within 5 years.

I'm assuming you mean having a plan like that?

 

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[Real Deal Denver]

Do all of your competitors offer net 30?

Do you offer something different/better than them to compensate for your inferior payment plan?

Your customers are thinking about their cash flow too.

For what reason would they choose to pay 30 days sooner to you vs going with someone else?


I agree with the sentiment of your post though, cash flow is immensely important to the speed at which you can grow, especially if you’re bootstrapping.
Although, in the spirit of this thread, cash flow matters less if you are well capitalized.

My products are unique. Nobody else offers what I do, so in a sense I have no competitors. But, then again, my product is one of many, so it is not necessary. Think of offering apple pie in a restaurant. They can get by without my product, even if I'm the only source for it. But having my product would definitely be beneficial for them.

Yes, everyone in this business offers net 30. It used to be that the distributor of the product - me - would also get net 30 terms. But I don't, because the market dynamics have changed so much. I don't like the fact that the dynamics change on my end for me, but not for anyone else. Isn't that the way it always goes, though.

I am reinventing the way I do business. Nothing personal, it's just business. I'm stacking the odds in my favor, for a change. I've done things the old fashioned way. I don't want to keep track of accts receivable. There's no need to - that's not my job. I'm not a lender. The way I see it is, if they want my product, get a business loan and buy my product. That's what I do with my suppliers.

I know some will balk at this idea and be insulted. Balk away. I am, instead, approaching this from a radically different perspective. If I can get only 200 customers, buying 50 products a month, then all will be well and good. Is that better than 500 customers buying 20 a month? Maybe not. But I'll go with the sure thing - and be guaranteed that I'm going to be spending my time in a profitable way - not chasing money or billing.

This is a radically new age we're in. The internet can showcase my product - I can instantly communicate with thousands of customers through a web site - funds can be instantly received. Wow. Talk about a hot bed incubator for business to grow!

AND, the speed of packs of dogs chasing me to steal my product also greatly increases, as well. Everything is increased by a factor of ten or more - wait, except my inventory turns - because I'm waiting weeks to be paid? If at all? Been there, done that. Too many times.

No, I'm taking control. I have superior products that will be very profitable for everyone involved. I want a superior business model that will grow 30 times FASTER than the old way of doing things.

I really can't see me doing this any other way. I'm totally gaa gaa and in love with this business venture. When the dogs do catch my scent and are on my trail, I will be 60 TIMES ahead of them. That means the sixty days I have invested in growing my business will actually be equivalent to 60 MONTHS of growing my business under conventional rules of engagement. That's five YEARS of growth in two MONTHS, because my sale ratio cycle will be one DAY instead of 30 days. Rinse and repeat. Let em catch me and fight over the scraps. I'll be cruising at 5,000 feet by that time. Then, by the time they do catch my scent, I will have SCALE that they won't be able to come close to.

Oooops - I've said too much. If MJ sees this, I've given him the outline for his next book. Fair enough, I guess. I got my outline from his first book...

 

[Scot]

After having a long conversation with @G-Man about this over the weekend and having some major developments happening in my business, suddenly the idea of taking on capital doesn’t seem crazy and like I could use to it get some major action in my category.

Thank you @Kak for making this thread Rep++

For investment in the $100-500k range, do you recommend angel investors or VC?

Do you look for just cash or cash + value add (expert in your sector)?

 

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[garyfritz]

@Kak, great stuff as always. You have lots of contacts, and investors would likely throw money at you because of your track record. How would you advise someone without your Rolodex or experience?

 

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[Talisman]

Heh, great validation of my current process and progress - thanks Kak.

Having said that - I wouldn’t have had the balls to take that approach without the last few years of execution and experience (as bio alluded to).

 

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[Woodsman81]

If there's one thing this post has shown me, it's that my 9-5 is killing my brain.

(Good) Ideas for me have always been hard to come by. When the day job isn't busy I have times where I'm creative and things are clicking and ideas are flowing. Then like a wave, it passes and just stops.

The first thing I do when I get a new idea is put it in a note book app on my phone. Then when I have a free moment I can open the note book be reminded of my ideas and start researching and it's easy to put notes below your idea.
I have the opposite problem I have so many ideas that I am having a problem focusing on one. The more I read in the forum the more I have.

Thank you for the great thread Kak!

 

[ZF Lee]

Just think... No more budget websites. No more learning to code. No more giving stock away to resources. No more doing your own photography. No more trying to figure out the f*cking tax code once a year. You won't be fighting tooth and nail for the small stuff. Large investments are out there, available and ready for the taking. It is an investor’s job to give money to solid entrepreneurs. Businesses with huge resources make huge money faster.

So if I were to start today... I would think bigger. I would come up with a damn good plan. I would use that plan to raise a ton of money. I would use that money to buy every damn resource I always wished I could afford. I would take a stranglehold of the bottom line and make my investors as well as myself rich.

Thank you @Kak for your generous offer.
I have been hearing a similar thing being said by Dan Pena.

I suppose that if we aren't going to do the coding and the photography, we'll have to hire it out.

How would you hire? Do you have a general doctrine on hiring?
Or do you get partners in the tech, finance and customer departments and have them use their technical skills and lingo to hire and pick more employees?

And on presenting your plan to investors, would you rather get some pre-sales first or no pre-sales as a track-record?
I have noticed some of the bigger companies starting out didn't really have that when they first went to the investors' table.

They may have only a prototype or so, but even then a prototype without first sales might be seen as weak.

 

[Midas]

Very inspiring. I can't help but think of Shark Tank and how the deals go left after the guests mention they have little to no sales. Your insight however does make me want to ramp up much faster after I have a few sales and a decent suscriber list. Thank you.

 

[ZF Lee]

I sold 20 years later with the buyer funded by a huge investment bank. He was thinking big but within a few years the business was worthless.

What happened there? Why did it go worthless?

Wasn't the business system you sold him fine?

 

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[amp0193]

Yes it is pure equity. They want in and own a piece. If the business goes nuts They win big like you.

Awesome, thanks!

 

[LateStarter]

If there's one thing this post has shown me, it's that my 9-5 is killing my brain.

(Good) Ideas for me have always been hard to come by. When the day job isn't busy I have times where I'm creative and things are clicking and ideas are flowing. Then like a wave, it passes and just stops. It's not that I'm thinking small, I just stop seeing opportunities.

Does anyone else experience this? Any tips to break out of it? Being part of a mastermind was probably the closest I've come to breaking the cycle. Similarly, when I'm actively working on a business idea as a solopreneur, it's easy for me to get tunnel vision.

Rep+! Thanks for shaking me up with this post @Kak . It's clear that I need a change. Hopefully, the Summit can help get me realigned.

 

[Ity]

This message is in response to a private message from @inputchip but it will likely be valuable in the open... It is short and sweet.

Let me start with what I do... I own 4 individual businesses in 3 very different industries, at least one of each B2C, B2B and B2G. I own a few cash-flowing assets and I am a semi-active investor that appreciates the control of managing my own money. Entrepreneur above all else. I have a lifestyle that doesn't strangle my finances or time. I own my life. I have my own worries and concerns, but it is never if the bills will be paid.

This conversation started with a question about my change of heart. I was once someone who thought Amazon was a great way to make ends meet for new entrepreneurs. I never considered it the one and only ticket, but it was hard not to recommend with most of us making a few grand in profit month one. Today is a different story with almost bubble like saturation. Extremely competitive brands racing to the bottom, cutting each other's throats and running up paid advertising to over 100% of ACOS to "prime the pump". It’s a dirty whore's market. Not to say there isn't still money to be made, but it isn't my kind of business any more.

So... With that said... If I started all over again with absolutely nothing.... I would think unbelievably bigger. Who the hell says you have to go in it alone with your first 2 or 3 grand to grow some consumer brand? Who says you have to bootstrap and hustle flipping bullshit and finding arbitrage strategies? Who says you have to be a onepreneur shop owner? You don't.

What you do have to be able do is competently explain your value to investors. Make them fight for you. If I were to start again I wouldn't touch a business without at least $500k in resources. Over and over again we see the biggest and most hyped over businesses were the ones that went after a lot of investor money in the beginning. (and 500 grand is far from a big investment)

Just think... No more budget websites. No more learning to code. No more giving stock away to resources. No more doing your own photography. No more trying to figure out the f*cking tax code once a year. You won't be fighting tooth and nail for the small stuff. Large investments are out there, available and ready for the taking. It is an investor’s job to give money to solid entrepreneurs. Businesses with huge resources make huge money faster.

So if I were to start today... I would think bigger. I would come up with a damn good plan. I would use that plan to raise a ton of money. I would use that money to buy every damn resource I always wished I could afford. I would take a stranglehold of the bottom line and make my investors as well as myself rich.

It’s not one size fits all, it’s not the only way, it’s just how I would do it.

Ask me anything...

WOW, loved your POV.
Thank you for sharing, really appreciated here.

 

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[Lucid Tech]

@Scot I made a thread a while back about generating interest in a fundraising round before you even open the round. It did not get much traction but you may find it useful for your situation:

Fundraising tip: Raise the round before it's even open

EDIT: Oops, you are already in that thread. But it is on topic so I'll leave it for now.

 

[Hai]

Agreed to the premise of the thread.
Thinking big enough and getting funding is a great way to build a great team, product and huge company and make hundreds of millions.

If you are just looking for some retirement money, then doing it solo can work just as fine.

It really depends on your goals. Bigger goals require different action paths.

 

[amp0193]

Rip it apart. Tell me why it's so bad or why it won't work. I want to hear it now rather than later.~

Do all of your competitors offer net 30?

Do you offer something different/better than them to compensate for your inferior payment plan?

Your customers are thinking about their cash flow too.

For what reason would they choose to pay 30 days sooner to you vs going with someone else?


I agree with the sentiment of your post though, cash flow is immensely important to the speed at which you can grow, especially if you’re bootstrapping.
Although, in the spirit of this thread, cash flow matters less if you are well capitalized.

 

[Kak]

After having a long conversation with @G-Man about this over the weekend and having some major developments happening in my business, suddenly the idea of taking on capital doesn’t seem crazy and like I could use to it get some major action in my category.

Thank you @Kak for making this thread Rep++

For investment in the $100-500k range, do you recommend angel investors or VC?

Do you look for just cash or cash + value add (expert in your sector)?

In general, you are going to have a tough time finding VC interest in deals that size unless they are a smaller VC firm. The big names with several hundred million or a billion+ sized firm are typically looking at deals involving $1 million or more.

It's just math: even a 50x home run return on a $100k investment is only $5mm which is a drop in the bucket for a fund starting with assets under management in the nine figures.

Under $500k I've found angels to be your best bet. Above $1mm, you're in VC territory.

$500k-1mm seems to be a somewhat difficult range to be in, as you're too big for most angels but you're too small for most VCs. Usually better to either aim a bit higher, or find a way to get started with less. (Or find an angel with very deep pockets, or a consortium of angels, etc. There are always options.)

If you are set on professional investors in your 100-500k range, there are always startup accelerators that invest in the range you're looking for (just over 100k) while still providing access to lots of resources to propel you forward. Examples Y Combinator and Home - 500 Startups .

For your second question, value add is always a plus. If your round is oversubscribed and you can pick and choose your investors, you always pick the one(s) that have experience and connections in your area. If you don't have that option, well, a dollar is still a dollar no matter where it comes from.


Just my $0.02.

I can second @Lucid Tech post

 

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