This is the first installation in my Thoughts on Entrepreneurship series. It stems from a talk a gave earlier this year in Bilbao… Up first is raising money.
Raising money is probably the most important step you’ll take in your business. It will probably take longer than anything else as well- *especially* if you live in Europe. You need to plan on a minimum of 6 months to raise funds, although 1 year from start to finish is very possible. Don’t sweat the valuation too much. If this is your first start up, you’re not going to get a great multi-million dollar pre-money valuation, nor a lot of cash up front. Sure, if you’re Jack Dorsey, you can raise top dollar at $40M pre, but then if you’re Jack, well, let’s just say that’s where you want to get to…
Raise as much money as you can. It is true that raising $5M is just as easy as raising $500k. Don’t worry about your “dilution”. Go for the gold. Think bigger (my next post covers this point). Raise the biggest amount of money you possibly can to execute as quickly and at as large a scale as you possibly can.
The other thing to remember is that you probably won’t be there when the company is sold anyway, so really, don’t sweat the valuation and your %. As they say, 1% of something big is better than 0% of nothing. A basic rule of thumb is that the *team* will hold around 5% of the company at exit. This percentage varies wildly, but it’s very important for you to keep in mind. I’ll use Jack Dorsey as a great example here. Looking at Twitter’s funding evolution:
Total funding raised is $155 million. $5 million was raised in July 2007 in series A funding from Charles River Ventures, Union Square Ventures, Marc Andreessen, Dick Costolo, Naval Ravikant, Ron Conway, Chris Sacca, and Greg Yaitanes. In May 2008, Series B funding raised $15 million from Union Square Ventures, Bezos Expeditions. Spark Capital, Digital Garage, Kevin Rose, and Tim Ferriss. In February 2009, Series C funding raised $35 million from Benchmark Capital, Institutional Venture Partners, Spark Capital, Union Square Ventures, Charles River Ventures, and Digital Garage. A series D round held in September 2009 raised $100 million from Insight Venture Partners, T. Rowe Price, Spark Capital, Benchmark Capital. Institutional Venture Partners, and Morgan Stanley. Via Technology Review
That initial $5M would have bought anywhere between 20-50% of the company, for a post of $10M to $25M. A $5M Series A is pretty spectacular, and even a $10M pre-money valuation for twitter would have been a good result. Fast forward 2 years though, and out of the gate Jack raised $10M for Square at a rumored $40M pre-money valuation (box standard 20% dilution). The point is that Jack’s been able to raise more money, and at a higher % valuation- from day one.
You need to plan on doing the same- if you’re an entrepreneur, you’re probably going to a be serial entrepreneur. What matters is that you get out there, raise money and put a serious score on the door; and then do it again.
Be like Jack. That’s your mantra…
Filed under: Europreneurship, Venture Capital
