Newbie entrepreneurs are often big on ideas but less knowledgeable about how to secure financing for their companies. Being able to communicate well and convey the value in their ideas is what may assure more successful fundraising and relationship building.
This panel provided an impressive mix of seasoned Silicon Valley veterans as well as a successful entrepreneur and investor from outside the Valley for a comprehensive overview and evaluation of what it takes to make it. They discussed early-round pitching for those totally new to this, as well as second and third round pitching for those with some experience under their belt.
Moderator Carol Sands, founder of The Angels’ Forum (TAF), one of the most respected angel groups in the San Francisco Bay Area, presided over a panel of distinguished industry peers. The panel consisted of June Riley, CEO of VC Taskforce; Charles Hudson, partner at SoftTechVC; and Donray Von, founder of Caslteberry & Co.
The VC Taskforce addresses both sides of the investing ecosystem to connect people seeking funding with those who want to provide it with:
a) Start Up Academy – workshops for entrepreneurs on how to dialogue with investors
b) Angel Academy – tools for investors on identifying and vetting potential startups
Charles Hudson discussed his career background in greater detail and used this forum as the opportunity to mention that he would soon be launching his own fund. Any startup founders looking to pitch should definitely add his name to their list of potential investors.
Donray Von had a successful career in the music business as a manager before becoming an investor. He explained the differences between those on the buying side and those selling. As a check writer (investor), he better understands why he didn’t always get funding—he needed to refine his ideas.
VC MATH: Funding Differences Between Big Investors & Smaller Investors
Angel Investors are usually affluent people (read that as anyone who is willing or able to take a loss in case the business fails) who receive a small equity ownership (1%-2% percent) in a company. This would likely be in exchange for a small six-figure sum invested.
An Angel may not fund you if they think your company will need a lot of money to stay afloat. Larger investors may come into play, which would reduce the chances of smaller investors making any profit.
In this example a $50M fund needs to earn at least three times the net and can often take 10 years to recoup.
Larger VCs (venture capitalists) get a greater percentage of companies and may invest as much as $10M or more. Note: Some investors don’t only want money, they may be just as interested in program related investments (PRIs). PRIs are included under the charity/nonprofit/private foundation area and are defined by the IRS as potentially covering:
- Low-interest or interest-free loans to needy students
- High-risk investments in nonprofit, low-income housing projects
- Low-interest loans to small businesses owned by members of economically disadvantaged groups, where commercial funds at reasonable interest rates are not readily available
- Investments in businesses in deteriorated urban areas under a plan to improve the economy of the area by providing employment or training for unemployed residents
- Investments in nonprofit organizations combating community deterioration
(Continued on next page)