REBLOG: Seeking Capital For Your Startup? Remember: It’s About Returns For Your Investor by JD Morris from Forbes
One of the most daunting tasks you are likely to face after having successfully founded a growing startup can be securing enough capital to pay the bills until the expanded operations begin to pay for themselves. Startups seeking funding for their expansions have a number of options for securing capital, but you still need to convince investors that your business is worthwhile as an investment. An understanding of the funding landscape will help hone your sales pitch and increase the odds of a successful capital campaign.
Unfortunately, the American business ideal of steady growth over the long term has been replaced in the minds of many entrepreneurs by dreams of founding a unicorn company that explodes onto the scene and cashing out through an initial public offering. Startup founders need to keep in mind that the likelihood of founding a unicorn is incredibly small, but there are other successful strategies for rapid growth using outside capital. Those strategies should be centered on producing a high company valuation and creating significant wealth for yourself and your investors.
Few modern startups succeed without outside capital.
The Fortune 500 list features a few companies that made it to the top as startups and by expanding the family business. Bill Gates was lucky enough to have a product IBM desperately needed. Jeff Bezos got his seed capital from his parents’ savings and raised $8 million through a series A round from Kleiner Perkins in 1996. Both companies also benefited from fantastic support from advisors and investors. For example, Amazon’s investment bankers played a crucial role in raising debt for them during the dot-com collapse, which resulted in Bezos retaining a large share of the company. When looking at the success of the founders of Facebook, Google, Microsoft and Amazon, you should know that this type of success is even rarer than the unicorn model.
Of course, there is still the chance your company will succeed without the help of outside capital. The bootstrap model, where an entrepreneur can entirely self-fund operations until the company is financially viable, can still work. With luck and products that offer high profit margins, the founder can take home a considerable paycheck. However, bootstrapping is unlikely to land you on the Forbes 500 list of billionaires any time soon. About half of businesses fail within five years, and capital is always needed for rapid growth.
If you are lucky enough to get capital from SoftBank, Sequoia Capital or other mega-funds to stay solvent until an IPO, then you are one of the very rare unicorns. The great IPOs of today tell a unicorn success story. However, there are significant failures. Jawbone’s pivot to health-tracking devices did not keep it from its 2017 liquidation. Dream of a unicorn, but remember, most investors are not looking to deploy capital to develop a unicorn.
Investors know the odds are against you.
Startup investors generally use a high-risk model where they spread their capital among numerous startups, knowing that it only takes one or two to be successful enough to pay back the initial capital investment. Companies that produce such returns are called dragons. Unicorns are more based on valuation. A dragon is one deal that pays the return for a fund after investing in many deals.
Normally two to three startups will provide enough of a return to make a venture capital fund successful, while the others fail to make any return for the fund. Based on this math, startup investors are generally looking for an exit when a company has achieved a valuation that is roughly seven times greater than their total investment in a company, in my experience. Sure, an investor could buy into an existing unicorn, but a high return after the B round is unlikely and often will not cover the losses from their other investments. Most investors need high valuation that will be supported by acquisition valuation versus the longer and riskier path of an IPO.
Laying out a realistic exit strategy is key.
Venture capitalists and startup investors know that most of their bets will be on losers, so if you think your idea is going to be a surefire unicorn that will dominate its market, go ahead and pitch it that way. Investors love to see enthusiasm in a startup, because it lets them know you believe in your company and are willing to put in the work necessary to make it successful. However, you should also lay out a more realistic exit strategy for investors, such as selling the company. I earlier suggested that “entrepreneurs should stop dreaming of the shiny IPO” and focus on being attractive for an acquisition.
Remember, investors are looking for a dragon to show their limited partners (i.e., 700%-plus return). A unicorn can be helpful for venture capital funds to show their investors should they want to raise more money for future funds, but the bottom line is the return they get from investing in you.
ABOUT JD MORRIS
Mr. Morris (JDM) focuses on serving on the board of advisors and board of directors of several private companies. His family of Special-Purpose Vehicle (SPV) invests in a wide range of businesses. JDM has helped close more than $91 billion in deals—leading more than $7 billion in enterprise value of these deals.
He has been a speaker at various industry forums, has been quoted in numerous leading publications, and has made several appearances on Bloomberg, CNET, CNBC, ESPN, and many media outlets. Mr. Morris hosted an educational radio show about financing deals and other hot topics after Bloomberg morning news.
Mr. Morris received a B.A. in economics with mathematics from Hampden-Sydney College in Virginia, where he worked in the development office to pay his way through college. He is an Omega Rho Honor Society student in Washington, D.C., with The George Washington University (GWU). JDM is currently working on finishing a program under MIT Sloan Business School, as well as the MIT Computer Science & Artificial Intelligence Laboratory (CSAIL).
My motto is “Say Provocative statements that intelligent people argue about fast without dotting your I’s and crossing your T’s. As life is all about fun and results!”
Editor Note: This is an example of possible future blog postings (this is an experiment)
Trying an example of Mad as Hell to provoke response or debate!
Wow, Black Friday produced some amazing deals and I was all in getting purple (vs. just Black) YETI cup, Dyson HEPA technology, boss glasses, and Apple iPad Pro!
My provocative statement/quote: “Dyson is a baller/model for Unicorns in 2020, but Bose, Apple, and few others are more like Mules vs. role models for future Unicorns!” – JD Morris 12-15-19 (19.12.15)
I AM MAD AS HELL!
APPLE: Love my watch (better than Dick Tracy’s watch) and love Apple. However, epic fails on not having a folding phone or trying something out of the box. You have more than $200 Billion (BILLION) in cash and can not keep pace with others. I want a Razor or Samsung Fold for Christmas Santa (please). Dear Apple, You have lost your role as an example for CEOs and dreamers of Unicorns.
BOSE: Love my boss’s glasses and adding my own lenses as I am kinda blind and can not hear well. However, What is your AR plan? You are at risk going from “Hero to Zero” in the next few months or year due to AR technology in glasses.
We will be speaking next week at the #1 Family Office Event in FL. JD Morris (kinda sound like few people speaking in 3rd person) had a great meeting in California, Minnesota, and Canada, with advisors and family members of billionaire families. Also, great meeting with a gentleman farmer (horses) form Texas this week already and it is only Tuesday!
The Capitalisation Report will go from Beta to launch in 2020! More than 10,000 people look at our information daily and we look forward to commercial launch.
KEYWORDS: Autotech Ventures, Sequoia Capital, Parthenon Capital, The Silicon Slopes Computer Science Fund, Perceptive Advisors, May River Capital, SignalFire, Peregrine Ventures, Centana Growth Partners, Plexo Capital, Crescendo Venture Partners, Kaiser Permanente Ventures, Revelstoke Capital Partners, United Ventures, Novacap, Loyal Valley Capital, Dyal Capital Partners, Harlem Capital, Two Sigma, JD Morris, The Capitalization Report,
FUND OF FUNDS WE LIKE
Volvo Group Venture Capital has invested in Autotech Ventures, an American venture capital fund focusing on startups in the ground transportation sector
Sequoia Capital, a Menlo Park, California-based venture capital firm, raised nearly 3.4 billion for two funds investing in later-stage U.S. companies, and venture and growth investments in China
Parthenon Capital, a growth-oriented private equity firm with offices in Boston, San Francisco, and Austin, announced that its affiliate, Parthenon Investors VI, LP, held its first and final closing with more than $2.0 billion in commitments
The Silicon Slopes Computer Science Fund launches with initial contributions and pledges of $4m
Perceptive Advisors, a New York, NY-based investment management firm focused in life sciences, closed its inaugural venture capital fund, the Perceptive Xontogeny Venture Fund, LP, at $210m
May River Capital, a Chicago, IL-based private equity investment firm, closed its sophomore fund, May River Capital Fund II, LP, at $300m in limited partner subscriptions
San Francisco, CA-based venture capital firm SignalFire raised a new pair of funds totaling $500M aimed at seed stage and early growth stage enterprise and consumer startups
Peregrine Ventures, an Israeli med-tech venture capital firm, closed its fourth fund, Peregrine 4, at $115m
Centana Growth Partners, a Palo Alto and New York-based specialized growth equity firm focused on the future of financial services, closed its second fund, Centana Growth Partners II, L.P., at $375m
Plexo Capital, a San Francisco, CA-based venture capital firm investing both in emerging VC funds and in early-stage companies around the world, closed on a $42.5m fund
Crescendo Venture Partners, a Tel-Aviv, Israel-based venture capital firm, is launching its new VC fund planned to raise $80 million-$100 million
Kaiser Permanente Ventures, the Oakland, Calif.-based venture capital arm of Kaiser Permanente, closed its fifth investment fund, at $141m
Revelstoke Capital Partners, a Denver, CO-based private equity firm focused on investing in healthcare services companies, completed fundraising for Revelstoke Capital Partners Fund II, L.P., and Revelstoke Single Asset Fund I, L.P., totaling $1.4 billion
United Ventures, a Milan, Italy-based venture capital firm, closed its second fund, at €120M
Novacap, one of Canada’s leading private equity firms, has launched a financial services fund with its first closing at C$260m
Loyal Valley Capital closed its second US dollar-denominated fund, Loyal Valley Capital Advantage Fund II LP, at $465m
Dyal Capital Partners, a division of Neuberger Berman, a private, independent, employee-owned investment manager, closed Dyal Capital Partners IV with over $9.0 billion of committed capital
Harlem Capital, an NYC-based diversity-focused venture capital firm, closed Harlem Capital Partners Venture Fund I, LP, at $40.3m
NYC-based investment firm Two Sigma closed Sightway Capital I, LP, a private investment fund which focuses on building companies in financial services and real assets, at $1.2 billion
WHY JOIN INVESTOR NETWORK BY JD?
Access to top deals by funds such as Sequoia Capital, NEA, Kleiner Perkins, and others for accredited investors with $100,000 USD to invest in deals through a broker-dealer based in the US or other countries. Come to cool places and meet cool people that co-invest! Canada this week and putting on the Ritz on FL next week on an amazing Island!
PRESS RELEASE OF WEEK (WE HAVE CRUSH ON THIS FUND)
NOVI, Mich., Dec. 12, 2018 /PRNewswire/ — Stoneridge, Inc. (NYSE: SRI) has announced an investment in a fund managed by Autotech Ventures (“Autotech”), a venture capital firm focused on ground transportation technology located in Menlo Park, California. The $10 million total investment, which will be contributed over the expected 10-year life of the fund, is expected to provide the Company with increased visibility to early-stage companies.
Let us face it that all quotes are based on proverbs so no need to quote somebody as the question is moot! JD Morris’s provocative statement for the day!
Today we launch our new blog posting P.S. by JD that based on my motto! My motto is “Say provocative statements (P.S.) that intelligent people argue about fast without dotting your I’s and crossing your T’s. As life is all about fun and results!” P.S. = Provocative Statement
I wrote an article for my MIT class about AI and used an AI tool called Grammarly to check for it being considered plagiarism. Some people are getting smart and know how to take credit for old sayings in the bible, chinses proverbs, etc. and sure enough, Grammarly pointed to possible sources. That leads to my favorite quote has issue and who should get credit?
Should you be able to bastardize a quote and call it yours? Let me provide an example with my favorite quote that says “I am a great believer in luck. The harder I work the more luck I have” and nobody knows the source of this quote. As of today, I am claiming the saying “Luck begins with hard work” and you will need to sight me or my lawyers will be sending you letter and demanding payment (Joking Kinda).
Who said the original statement? Grammarly did point me to quoteinvetingator.com that points to Thomas Jefferson and a ton of other people that most likely just bastardized a quote from the bible or Chinese proverb. The funny thing is one of Thomas Jefferson’s foundations said that he did not say that statement and should not be quoted. That leads the statement that everything said can be found in a proverb, so you do not need to quote me or anyone. You be the judge based on this research that did not look at the old proverb for the source.
Thanks Forbes for featuring me in one of many articles.
Choosing The Right Bank Or Credit Card: 10 Tips From Finance Experts
10. Look For Apps That Can Help
Experian and a few others have apps that will provide recommendations based on your credit score. They have apps that will allow you to compare features including annual fees, intro rates, annual percentage rates, etc. Not all people and not all cards are created equal, so take advantage of Experian or others that have apps to help. – JD Morris, Red Hook Capital