Securities, the American Marketing Association, the National Black MBA Association Inc. and African American Women on Tour extend the reach of their conferences and seminars via the Web.
In her first round of funding, typically called the seed stage or “angel round,” Folsom raised $1.2 million from several angel investors, individuals who finance emerging entrepreneurial ventures. If at all feasible, you want to raise capital from investors who bring more than just money to the table. Look for industry experience and connections.
The angel round typically goes up to about $1 million and usually doesn’t include money from professional venture capitalists. Since the venture capital market has expanded so dramatically, many venture capitalists no longer participate in seed-stage opportunities. “A venture capitalist who might have invested $100,000 in a company several years ago now invests a minimum of several million because of the high volume of deals that are being done,” explains Karen Kerr of Arch Venture Partners (www .archventure.com), a Chicago-based venture capital firm that focuses on seed- and early-stage technology companies. “A company that’s just starting can’t take that kind of investment because it will dilute the ownership structure too dramatically. Instead they turn to high net worth individuals or investor angels.”
quot;you need to have access to people who can invest in the deal,” says Folsom, who advises developing relationships with attorneys, accountants, bankers and other service providers who can introduce you to potential investors. You’ll also want to create an advisory board of individuals with industry experience or connections to help with the strategic direction of the company as well as to provide introductions to sources of capital.
Before you accept any funds, it’s important to engage the services of an attorney familiar with venture capital deals. “Your attorney will represent the company in the process of getting itself organized and funded and negotiate on the company’s behalf from the term-sheet stage through final documentation,” explains Craig Venable, an attorney with the Silicon Valley-based law firm Cooley Godward L.L.P. The term sheet reflects the valuation of your company and delineates the parameters of the investment.
Your company’s valuation is based on several factors, including the experience of the management team and the state of the development of the business. “Typically a start-up with a good business model and a proven management team but no revenues, proprietary technology or customers can expect to be valued by Arch Venture at between $2 million and $5 million,” says Kerr, who admits that setting valuations is more art than science.
“If you want to get a more favorable valuation, try to get a strategic corporate partner,” says E. David Ellington, president and CEO of NetNoir (www.netnoir.com), a San Francisco-based African American Web portal. He was able to get America Online (which announced plans to merge with Time Warner on January 10) to invest at a valuation of $5 million, which set the stage for later investments. “Corporate partners value a company a lot less harshly than venture capitalists, who are focused solely on maximizing