I attended a great talk by Rick Segal of JLA Ventures this evening, hosted by my friends at BootUp Labs. Sort of a primer on the process you go through to raise VC money. Outsiders often have the best insight, and as an American running a Canadian VC fund, Rick’s better placed than most to offer an objective perspective on our strengths and weaknesses.
The short version: don’t dig yourself a hole with poorly structured friends and family rounds; convertible debentures are your friend; don’t try and raise VC money for a lifestyle business; really know your numbers (trust me, almost no-one takes the time to understand how their business actually works; it’s a huge differentiator); and make sure you check your ego at the door and really have the stomach and drive to exceed your VC’s expectations. All self-evident once you’ve emerged from the process of pitching VCs without knowing this stuff, and all things it’s infinitely better to know before you get started.
As is always the case, the best part was the Q&A. And as is also always the case at events in Vancouver that even brush up against the topic of raising capital, talk turned to our level of risk tolerance. Or lack thereof. I’ve founded or co-founded four companies now, with varying degrees of success, and certainly no home runs yet. Along the way the greatest pressure has always seemed like it was financial (try sleeping at night when you’ve racked up $75k of credit card debt), but looking back that ought to have been the least of my worries. The pressure, as Rick points out, ought to be about beating the crap out of the milestones you’ve set for your business.
The rule of “someone else’s money” is a great one, but not in the sense that you have to find willing investors in the very early stages. Generally at the “idea” stage I think it’s a complete waste of time to chase institutional money and in the process burn valuable time that could be better spent on doing real work. The beauty of our credit rich, cash poor society is that at the earliest stage of a venture, the friendly Canadian banks can be your investors without even knowing it. Sounds insanely risky or irresponsible? Perhaps it is, but if you truly believe in your idea (you do really believe in it, right?), then think how much progress you can make on the tens of thousands you’re likely to find at your disposal.
If it doesn’t work out, what’s the worst that can happen? You won’t go to jail. Your loved ones will still love you. Chances are you don’t own a house that you can lose. Your credit rating might take a major hit, but putting it in perspective that’s about as traumatic as an ugly break up — that is, it gets exponentially better with time. Someone in the audience commented that they were scared at the prospect of personal debt, which, going back to Rick’s advice is not so bad a test for whether or not you’ve got the stomach just to get on with hitting that home run.
Comments 2
Hey great read Daniel.
So I sold a company to the guy who helped found and start (Bass Tickets ) later Ticket Master and he likes telling the story of flying over to London to make their first deal against all odds.
As it turned out he had to get there fast to close the deal…so he took the Concord out of New York. He got the deal done at the last minute and stayed to celebrate with the client and was back at Heathrow the next day ready to head back across the pond and celebrate with his team.
As this was back in the 70’s the merchant was often on the telephone to Master Charge or whomever was the Card Company to verify credit on big ticket items, this is when they proceeded to cut his credit card in half in from of him at the ticket counter. This entrepreneur found him self a fare ways from home with a challenge on his hands.
Ah debt our misunderstood friends! Yes debt was his friend and he did find a way home (in laws if memory serves me) and sold his interest in the company for a very large (behemoth) sum a few years later and apparently to this day there are free tickets for all events that ticket master handles for him anywhere he finds himself…he loves telling this story and I’ve heard it a few times and your piece made me think of sharing it.
My own personal version was about 4 cards maxed out when the towers came down and the only phone calls from then on where from the banks o_O
Cheers mate!
Posted 22 Apr 2008 at 1:27 pm ¶Thanks John. Everyone needs to hear more of these war stories, particularly here in Vancouver. Might be fun to organize a “tell your scariest entrepreneur experience” event…
Posted 22 Apr 2008 at 1:32 pm ¶Post a Comment