Founders dream big, hoping their ideas hit the marketplace and reward them with skyrocketing valuations. But most entrepreneurs need to be honest with themselves when trying to attach a value to their idea.

Obsessing over valuations, particularly during the early phase of the startup, can be simply too distracting for the business owner who may be prematurely focused on raising capital.

According to Kevin Colleran’s article in the Wall Street Journal, “Don’t Become Consumed by Valuation,” entrepreneurs need to concentrate on “building the business” rather than trying to grab hold of an elusive valuation number. Colleran suggests concentrating on the following two principles:

Investor’s strengths…

And it’s not always about the money. Instead, look for strengths in the individual or group that may point to a certain expertise. Colleran doesn’t discount the idea of bringing as much money to the table as possible; rather, he thinks it’s much more prudent at times to accept a lower valuation at the start.

“Clearly, it makes sense to shoot for the highest valuation possible in order to minimize dilution of the business, but in most instances, the smarter move would be to optimize for the quality of investor by exchanging more equity at a lower valuation for a rock star team of investors and advisers.”

Keep control…

Realize your weakness may be in negotiations, which may not garner the controlling interest you’re hoping to keep in your business. In the rush of the moment, startup founders may move too quickly to give up too much ownership early on. Don’t let cash crunch be the reason an outside group might be tempted to take advantage of your situation.

When it’s time to drill down on funding offers, contact us to learn more about our proven method of accurately analyzing all aspects of The Deal, and continue to have all the best data to make better decisions as you move forward.

When starting a new business, one of the first steps is to acquire the venture funding to back the cost of starting and initially operating the business until it starts to turn a profit.  There are many individuals and groups who wish to start a new business, so how do you look for funding?  How do you obtain good investors?  Below are four tips for securing the venture capital for your new or growing business.

 1.  What are your business goals?

Before starting to raise venture capital for your business, you need to determine what your business goals are going to be.  Do you want a large business which is going to have a large impact on society and generate wealth?  Do you want a smaller, family-oriented business that is more designed to support a comfortable lifestyle but not make other people wealthy?  As the saying goes, you can’t have your cake and eat it too.  You have to make the decision about what you really want up front in order to provide direction and to know how to approach investors.

2.  Network, Network, Network

It’s great to want to start a business; however, you have to go out and meet people.  You have to put yourself where the investors are going to be.  Attend business gatherings, conferences, conventions and workshops to come into contact with potential investors.

3.  Make sure your team is at Peak Performance Level

While attempting to raise venture capital, keep the focus on your employees.  Many failures are not the result of not having capital, but the result of the key players not being ready for the next move.  Make sure all team members are aware of strategic target points that must be met for the venture to be a success.

4.  Choose experienced investors

With the right idea and business plan, it can be relatively easy to acquire investors – that is the kind that will write you a check.  However, look for investors who will do more than simply back your business with money.  There are investors who will add a great deal to your business besides giving you money.  Look for investors who know something about your business and business environment.

Although the business environment today is much tougher than it used to be, your business can be successful with the right plan, team and investors.  Use the tips above to choose wisely and contact us to see how we can help after you raise the next round.

Even now, CEOs and other execs spend hours at board meetings gathering information from department experts who made analyses based on a combination of experience and intuition.  Spread sheets have become the standard replacement for storing data, but they frequently allow errors from uncorrelated factors.  In recent years, cap table software has started to play a major role in analytics and value assessment, creating new standards for rapid access to essential information.

Productivity:  No one is arguing that new software solutions have decreased the amount of work we do.  Why? Because we now have tools that can help us make progressive and profitable decisions with data available at a glance. This makes more work possible in less time.

Flexibility:

Whether you’re headed to a board meeting or making decisions about capital investment now you can have accurate data accessible where and when you need it.  Cloud storage makes this availability possible and keeps data available wherever you are.  As an investor you can access the prices stakeholders pay for equity shares, preferred shares and options, see your exposure in relation to that of other investors, and evaluate the overall capital structure of early stage investments easily and quickly.  You’ll get cap tables showing fully diluted equity, and that includes a feature providing full service Topic 820 support.

Comprehensive Information:

As a corporate executive you’ll appreciate the ease of 409A valuation, the concise presentation of vesting and forfeiture data, and the correlation of all data for an accurate presentation of capitalization tables. The same software will help you forecast the reaction of investors by security type to a possible merger or future financing.

Cap table software  from Shareholder InSite utilizes a proprietary iterative algorithm allowing investors to evaluate and execute a variety of scenarios based on real enterprise value.  This helps you choose what to buy and when to sell taking brokerage fees and other factors like additional equity issues into consideration.  For corporate use we offer the ability to reduce the effort of preparation and improve presentation availability and accuracy.  If you need accurate, up-to-the-minute reporting contact us to make your own appraisal.

If you ever thought the pathway to all that Venture Capital money was through the proverbial ‘good ‘ol boy’ network, think again: The same “change and disruption” driving many VC portfolios, is also uprooting any hint of status-quo among the moneyed investors.

In the past, social media, for the most part, was used by a VC’s client to promote and market that next big-idea or product. Today, those same investors are facing a shrinking industry with “consolidation” at the forefront, according to Mark Suster, a presenter at the Thomas Rueters’ Venture Alpha East conference held in Boston in early April.

The big changes on the horizon, especially over the next 10 years, mean less reliance on “money” per se and more interaction in social media channels to establish distinctions among VC groups. Noted Suster:

“Forward-thinking VCs are using their operational experience in creative ways and raising their public profiles through blogs and social media,” he said. “Their greater public personae and more active portfolio company participation helps to differentiate them in a consolidating industry…”

What’s more, say “goodbye” to deals emanating from established associations and “welcome” to smaller, agile and established VC firms; this, in a universe comprised of “fewer than 100” investment organizations, noted Suster.

As such, these boutique-like VC firms are focused on developing platforms that will integrate their portfolio companies. This alignment will likely point startups in the direction of viable business opportunities.

Leaders behind such consolidation in the VC segment include Google Ventures, Andreessen Horowitz, First Round Capital and True Ventures.

Shareholder Insite offers today’s VC firms a proven method of analyzing that next deal to add to the portfolio. Then, when the time is right, we can provide the essence of shareholder management to keep you on track. Contact us to learn more.