How to Raise Venture Capital for a Tech Start-Up
Black Enterprise Magazine September/October 2018 Issue

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(Image: Scott Council)

What does it take to get your tech company funded by people other than your family and friends? It’s a lot harder for tech entrepreneurs than for those who are trying to raise capital for a brick and mortar business. The product and customers are sometimes less tangible.

Before launching FileBlaze, a cloud-based file storage and streaming service, Chuck Baker, 41, worked as an executive producer for music artists like Mya and Dru Hill. He realized there was a void in ways to transfer large uncompressed files like music, videos, and photographs, and preview them in real-time from the Web without also downloading other memory intensive software. He created FileBlaze to help prevent piracy, leaks and unauthorized downloads of copyrighted material.

Initially, he and partner Rhahime Bell relied on angel investments. Over a three year period, they raised approximately $2.5 million from 16 investors, including themselves, family and friends like former basketball player, Alonzo Mourning, and filmmaker, Malcom Lee. Baker used the money to erect the site in increments starting with an alpha prototype that cost $250,000 to build. With each new investment they deployed new features to the site. Recently they received a bank loan for an undisclosed amount and they’re hoping to raise $15 million on their next round of financing. Despite so many investors, the two still retain a 59% majority ownership in the company.

Whether you live in California’s Silicon Valley, New York’s Silicon Alley or somewhere in between, it’s important to understand how angel or venture capital financing works in the technology world.  You don’t want to make a bad impression by pitching a venture capitalist when you don’t have all of your ducks in a row.

Most startups boot strap and use angel investors to do market research, file a patent, and create an alpha prototype, but the first round of financing, sometimes called the Series A, is the amount a company needs to secure to create a beta product, recruit the first set of core employees or partners, test the product, and begin generating revenue. Series A financing can be between $1 million and $12 million depending on the company’s needs and goals, and investors at this round are usually taking a big risk.

Also know that VC money isn’t free. Expect to give up a percentage of your equity to your investors. The more risky the investment, the more equity you might need to give up. Series B financing is usually sought after the company has become more established and the amount can range depending on the valuation of the company.

Funding rounds can be made as long as the company needs money to expand operations. For example, Gazelle, a four-year-old, Web-based company that recycles cell phones and other electronics for cash, raised $22 million in a Series D financing round. The company plans to use the new round to market its services to mass media.

Continue to next page to continue reading and watch Chuck Baker’s start-up tips…

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Marcia Wade Talbert

Marcia is a multimedia content producer focusing on technology at Black Enterprise Magazine. In this capacity she writes and assigns stories to educate readers about social media; digital integration; gadgets, apps, and software for business and professional development; minority tech startups; and careers in STEM (Science, Technology, Engineering, and Mathematics). In 2012, she received two Salute to Excellence Awards from the National Association of Black Journalists and was recognized by Blacks in Technology (BiT) as one of the Top 10 Black achievers in the tech arena for 2011 at SXSW in Austin, Texas. She has spoken about technology on panels for New York Social Media Week, at The 2012 Rainbow/PUSH Wall Street Summit, as well as at Black Enterprise’s Entrepreneurs Conference and Women of Power Summit. In 2011, SocialWayne.com chose her as one of 28 People of Color Impacting the Social Web, and through crowdsourcing she was listed as one of BlackWeb2.0's/HP's 50 Most Notable African American Tastemakers in Social Media and Technology for 2010. Since taking on the role of Tech editor in September 2010, she has conceived and produced five cover stories on Technology and/or STEM and countless articles, videos, and slideshows online. Before joining BlackEnterprise.com as an interactive general assignment reporter in 2008, she freelanced with Black Enterprise beginning in 2003 while working as the technical editor at Prepared Foods magazine. There she further honed her writing skills and became an authority on food ingredients, including ingredients used in food fortification and enrichment. Meanwhile, her freelancing with Black Enterprise and BlackEnterprise.com helped her stay current on issues pertaining to the financial and business welfare of African Americans. As a general reporter for Black Enterprise she attended and reported on the Democratic and Republican National Conventions, where she interviewed Valerie Jarrett, senior advisor and assistant to President Barack Obama and U.S. Attorney General Eric Holder. Marcia has a Bachelor of Science degree in Agriculture with an emphasis in food science from the University of Minnesota, and a Master of Science degree in journalism from Roosevelt University in Chicago. En route to her secondary degree, she served as the editor-in-chief of the Roosevelt University Torch, a weekly, student-run newspaper. An avid photographer and videographer, Marcia is one of several employees at BLACK ENTERPRISE who interned for the publishing company as a college student. She lives in New Jersey with her husband, a food scientist; her seventeen-month-old daughter; and “The Cat”, but still considers Chicago home.


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