Raise Money (Be like Jack)

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…

Entrepreneurial Leadership Speaker Series

Hussein Kanji has organized a venture capital and entrepreneurship lecture series starting in October, which will be held at London Business School. Current speakers announced are:

Robin Klein, The Accelerator Group, Thursday Oct 1
Stan Bowland, Icera, Thursday Nov 5
Stefan Glaenzer, Last.fm, Thursday Dec 3
Bernard Liautaud, Balderton, Thursday Feb 4
Jos White, MessageLabs, Thursday March 4
Herman Hauser, Amadeus, Thursday, May 6
Mike Hedger, KVS, Thursday June 3

Other speakers will be announced in the near future.

If you're interested in venture capital and entrepreneurship; then this is the series of speakers you need to get to…and it's FREE. It's a stellar lineup, and the price is right. Full details and bios available at the London Business School website or on Hussein's blog.

See you there.

First-time Entrepreneurs?

Library House's newsletter yesterday (free registration req'd) highlighted an article by David Storey in the FT- making the case that there is no correlation between an experienced entrepreneur/management team and a company's success.

Storey summarises this belief [that failure is accepted in the US, and that it is a source of learning] to dismantle it, arguing that knowledge gained from a failed business makes little difference to future business success, due to the unpredictability of starting a business. ‘The best analogy is with a lottery,’ Storey writes, ‘it is not possible to learn to win a lottery.’

Storey points to research in the UK and Germany which indicates that experienced founders are no more or less likely to succeed in starting a new business than novices. It goes against one of the basic tenants of venture capital investing – focusing on the experience of the management team

At first, I thought that was the stupidest thing I had read in a very long time.

However, after giving it some more thought, I actually agree:

I'm not too worried about entrepreneurs being young or old; experienced or novice. I *am* worried about very large markets where an investment can be the leader (or at least one of the top 3). I'm also worried about great products and real, unmet needs…

An entrepreneur's experience? I've never lost any sleep over that one.

London Venture Capital Events

A comment was posted earlier in the week asking what events are relevant for new arrivals in London looking to get involved in the venture/start-up comunity. I was looking for the same in 2004 and posted a short list in 2005. Here’s a revised short list of VC-related events in and around London, no particular order:

Regular events:
Internet People (no link)
Open Coffee
City Zone
Chinwag
Mashup events
Mobile Monday
Geek Dinner
Second Chance Tuesday

Conferences:
FOWA
Symbian Smartphone show
Paid Content UK events
Library House events

Mike Butcher over at TechCrunch UK tends to post lists of upcoming events on a regular basis. Latest list here.

Any events I’ve left off, feel free to add them in the comments section.

Promoting Europreneurship- what’s next?

San FranBrightoncisco, Silicon Fen (Cambridge), Silicon Glen (Scotland), Silicon Isle (Ireland), Silicon Ditch (London)- whatever you call it, how do we make it better?

Saul has spearheaded seedcamp, we’re running our accelerator program for the 4th time, some universities have speaker programs, corporates are actively supporting start-ups (Microsoft, Oracle, Google) and there’s an ever-growing list of great events to attend (even first tuesday is back)- which is great, but it’s all top-down and by nature available to all of about three companies.

I ran across a few posts from Ireland over the weekend which were good food for thought: Conor’s post on David Heinemeier Hansson, a response over at Pinstripe and further comment at waveson.

Basically, what we seem to need are guys like David to start inspiring others to start writing amazing code- and then we’re really onto something…

What do you think- what’s next and what’s needed?