Comments on: How investors can kill your startup without losing any money themselves

By: Dave hannon

Dave hannon — Tue, 04 Mar 2014 06:32:36 +0000

Rebekah
What a read,
boy you have been around the block.
that has made you what you are now .
keep up the good work
.
Dave

By: Peter Tippett

Peter Tippett — Thu, 27 Feb 2014 03:55:28 +0000

Thanks for this. Have been through the mill as well and with my new startup, will work hard to make sure I don’t get caught again.
The core lesson, term sheet first, if not, then it isn’t right, move on as it tells you a lot about them going forward. As part of the term sheet always set due dates for different parts and that gets commitment. Tension helps a lot with this, but the key item is always to keep the business growing and meeting those targets you set as that puts more pressure on them, as someone could come in a late them out as the deal isn’t real until the money is in the bank. Have learnt that as one fell over on the last day.
Also, sign the term sheet late in the quarter as you know the numbers and if possible get everything done before the end of the next quarter otherwise they will use the numbers against you even if you meet the promised numbers.
So, the final item, if you can find investors you can trust to be fair, upfront and don’t waste time, i.e. no bullshit, take them even if it is a bit less valuation, as it always about the long game. Good investors always bring more good investors.

By: Barbara Clarke

Barbara Clarke — Fri, 14 Feb 2014 18:09:32 +0000

As an angel I have seen this happen more than once and am now at the point where I caution the startups I work with to be vary wary of any deal until it’s done. Angel groups and VCs have reputations and we all talk.

By: Ben Dubin

Ben Dubin — Thu, 13 Feb 2014 13:00:20 +0000

Great post. As a venture capitalist I can tell you that this is unfortunately the reality of too many venture firms. If you could sit in on their weekly partner meeting you would know more of what they are REALLY thinking. You need to read into what is NOT being said and also who is saying things. Venture firms usually have a very strict hierarchy. Associates work the field and are rewarded mostly for just interacting and bringing deals. Senior partners will often placate the associates, but usually if it is not their own deal, or someone they already know, the odds of investing go way down almost nil. Your time is very important, must venture firms don’t think of this. Look for a small firm and make sure that you meet a managing partner – that gets a vote in a deal early. If not, move on quickly. Good luck!

- Ben

By: Simon Sheikh

Simon Sheikh — Wed, 12 Feb 2014 22:11:55 +0000

Great advice Rebekah, thanks for sharing!

By: Alex Martell

Alex Martell — Wed, 12 Feb 2014 09:45:31 +0000

In traditional M&A, properly designing and controlling the sale process is a key tool for maximising the likelihood of a good outcome. For example, you would set key milestones (e.g. indicative bids, completion of diligence, final bids, etc.) and have the same deadline for all bidders for each milestone. That way you create tension among the bidders, give them a powerful incentive to make a go/no-go decision without faffing about, and best of all you don’t put your management team through multiple diligence processes (in most cases).

For startups, I think the lack of competitive tension is a key reason why raising capital can be so tortuous. It’s not necessarily that there aren’t several investors or groups of investors that might be interested in your startup. It’s more that at any particular point in time, it is very rare for more than one investor to be looking at your business. At that particular point in time, the investor knows you need their capital more than they need you, and with no one at that time to compete with them, they do not have a powerful incentive to close a deal quickly.

Can the principles of M&A be applied to a startup capital raising? Don’t know. Running a proper M&A process is a full time job in and of itself. But I think it would certainly go a long way in mitigating some of the issues Rebekah raises in her post.

I think new equity crowdsourcing platforms like Squareknot Australia have potential to solving this problem for startups. Will be interesting to see how they evolve.

By: Adrian Downes

Adrian Downes — Wed, 12 Feb 2014 08:52:04 +0000

Outstanding, open and honest commentary on the hidden costs in courting investment.

Thanks so much for sharing, Rebekah…. equity financing is on our horizon, and your insight has opened my eyes to some of the potential pitfalls.

Looking forward to reading more of your posts in this regard.

Cheers,
AD

By: NickHac

NickHac — Wed, 12 Feb 2014 05:39:00 +0000

Hi Rebekah.

Great post.

This happened to me twice at BuzzNumbers as well.

I wrote up my learning from the process if you are interested.

http://tinyurl.com/NickHacOnRaisingCapital

From my experience the single most important way to ensure you don’t waste time is to ensure you have competitive tension by having multiple potential investors interested and going through the process at the same time. You can then play them off each other to get the right terms and also to create a “fear of missing out” situation which can dramatically accelerate the investors focus on getting it done.

I love the expression “Time Kills Deals” – and if you let the investor run your timeline, then they can run you out over months and months wait till you are desperate and offer you bad terms.

Keep up the great work!