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Fundraising Hacks: What type of capital should you raise, and how do you meet investors?

How do you decide which investor you should target and raise capital from?   Venture capital is just one of many options to finance your business, and it’s typically the most expensive. The broader question is: what type of capital should you raise, and from whom? I find many CEOs/CFOs default to approaching the investors who […]

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The post Fundraising Hacks: What type of capital should you raise, and how do you meet investors? appeared first on David Teten.

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How do you decide which investor you should target and raise capital from?  

Venture capital is just one of many options to finance your business, and it’s typically the most expensive. The broader question is: what type of capital should you raise, and from whom?

I find many CEOs/CFOs default to approaching the investors who have the most social media followers; who have spent the most money sponsoring events; or whom they met at an event. But, fame and the chance that you met someone at a conference do not logically predict that investor is the optimal investor for you. In addition, the best known investors are also the ones who are most difficult to raise capital from, precisely because they get the most inbound.

The first step is to decide the right capital structure for your financing.  Most CFOs build an Excel model and do a rough comparison of the different options.  Some firms provide tools to do this online, e.g., Capital’s Cost of Equity estimator; Lighter Capital’s Cost of Capital Calculator; 645 Ventures’ cap table simulator; Bootstrapp.co’s Comprehensive Cost of Capital Calculator.  A similar, open-source, highly visual tool focused on VC is Venture Dealr. Another tool is NoteGenie.io.

For each of the major categories of investors, you can find online databases of the major providers. Major options include:

If you’re raising equity, the investors are relying on the company’s value itself to get paid back.  Other investors are looking for some other backing/collateral. Options include:

  • Personal guarantee
  • Purchase orders
  • Intellectual property.
  • Accounts receivable/recurring revenue
  • Inventory
  • Real Estate/ equipment
  • Cash flow

Many capital providers lead with one type of capital, but offer other capital types and get compensated via origination fees.  Effectively they’re financing supermarkets, although they may have a bias to certain types of capital which are more profitable for them.  Examples include most of the large B2B banks, Kapitus, Kalamata Capital, United Capital Source, etc. These firms can give you an apples-to-apples comparison of what different capital forms, albeit all via one source, will cost you. 

Once you decide on the right category of investor, I suggest keep in mind that identifying the right investor is a two-way street. Ideally you’re looking for an investor who will invest time and energy with your company; has significant relevant experience; and an ability to add significant value. Alex Koles, CEO, Evolve Capital, said, “If there is not a mutual trust and shared vision in the opportunity, it will be harder to work through thorny issues down the road.  It’s not a question of if the thorny issue will occur, but when, and management needs a strong advocate willing to listen and help out.” I have a whitelist of investors I recommend to my portfolio…and a blacklist which I guide them to avoid.

Rocky Gor, Founder, CAPX, said, “Based on my interaction with CFOs, the common theme is the lack of knowhow and data for structuring the right deal. Unlike venture equity candidates, middle market companies can access 5-8 types of debt structures  (in addition to at least 2 types of equity structures), each with their own benefits and considerations. In order to structure an efficient deal, one needs to know the features of each capital type, capital providers and their preferences. CFOs don’t have time to find the ideal capital sources (there are more than 1,100 debt providers out there), so they go with the one in front of them, even though it might not be optimal (a lot of times they don’t know what is optimal as they do not have the data to readily identify and analyze alternatives). Middle market is likely the largest segment of financing in the US and it continues to operate the same way it did in the 1920s!”

Svetlana Lebedeva, Advisor, Bank Leumi, observed, “Venture debt will be most affordable from banks. However, a bank’s credit box will be more narrow than that of a non-bank lender, like a venture debt fund. Banks will typically qualify a start-up for venture debt at or after series A from VCs they are familiar with. So if you haven’t raised series A, banks will typically turn you down. The reason they need to see a VC already on the company’s cap table, is that in early stages, banks are essentially underwriting the probability of a startup raising the next round (as companies may still be figuring out their product/market fit and haven’t scaled yet and are certainly burning cash). The other reason is that in case things don’t go according to plan, VCs lose their equity investment if the bank isn’t paid out. So the bank likes to have smart, sophisticated investors backing a startup which lowers their risk which, in turn, enables them to provide venture debt at around half the cost of a non-bank lender.”

David Abraham, head of DAC Capital, observes, “The fact is that there are an extremely large number of capital sources at every strata on the risk/return spectrum.  Some will be well-known names, others will be findable using a directory. And others may not be findable at all with any level of confidence.  But it is often hard to discern the actual appetite for a particular transaction. An experienced investment banker will have experience with a wide enough group of capital providers at every appropriate level.  He or she will work with the company to develop a list of a sufficiently broad set of candidates. It’s not so much finding the ideal capital provider as it is finding a good provider with a properly structured transaction at a fair price.”

*I’m an investor.

Further reading from my blog:

Please don’t pitch a venture capitalist without this checklist

Fundraising Hacks

Financial Modeling for Entrepreneurs

Other resources

Indie.VC: Financing Options for Early-Stage Companies

The Capital Stack: How to Optimize User Acquisition Funding

How to Find the Right VC To Fund Your Business

The Full Spectrum of Non-dilutive Growth Capital

The don’ts of debt for fast-growing startups

Understanding the Cost of Capital

Expected rates of return for different categories of investors: Pepperdine Digital Commons 2019 Private Capital Markets Report

Older version of this article contributed to Techcrunch

Source: https://teten.com/blog/2019/11/14/what-type-of-capital-should-you-raise-and-from-who/

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Private Equity

20VC: Sequoia’s Roelof Botha on His Biggest Lessons Working Alongside Don Valentine, Mike Moritz and Doug Leone, Leading Sequoia’s US Business and What Sequoia Do To Retain Their Edge at the Top & The Crucible Moments That Define Startup Success

Roleof Botha is a Partner @ Sequoia Capital, one of the world’s leading venture firms with a portfolio including the likes of Airbnb, Instacart, Stripe, UiPath, Zoom, the list goes on. As for Roelof, at Sequoia he has led rounds into the likes of YouTube, Instagram, Eventbrite, Square, MongoDB, 23andMe and Unity Technologies to name a few. Before joining the

The post 20VC: Sequoia’s Roelof Botha on His Biggest Lessons Working Alongside Don Valentine, Mike Moritz and Doug Leone, Leading Sequoia’s US Business and What Sequoia Do To Retain Their Edge at the Top & The Crucible Moments That Define Startup Success appeared first on The Twenty Minute VC.

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Roleof Botha is a Partner @ Sequoia Capital, one of the world’s leading venture firms with a portfolio including the likes of Airbnb, Instacart, Stripe, UiPath, Zoom, the list goes on. As for Roelof, at Sequoia he has led rounds into the likes of YouTube, Instagram, Eventbrite, Square, MongoDB, 23andMe and Unity Technologies to name a few. Before joining the world of venture, Roelof was the CFO @ Paypal playing a key role in their hyper-growth from 2000-2003.

CLICK TO LISTEN ON ITUNES

In Today’s Episode You Will Learn:

1.) How did Roelof go from actuary in South Africa to CFO @ Paypal? What were his biggest lessons from seeing Paypal burn $10M per month? How did Paypal lead to his joining Sequoia as a Partner?

2.) Market Evaluation: Does Roelof agree that the market is crazy today? How does today compare to prior vintages? How does Roelof assess the compression of fundraising timelines? With compressed timelines, how does he build relationships of trust with founders?

3.) Founder Evaluation: What were Roelof’s lessons on founder assessment from Don Valentine? What matrix did Don teach Roelof to assess founders on? How does Roelof feel about the rise of competitive rounds? When should founders take them vs remain heads down on execution?

4.) Investment Mentality: How did Roelof prevent becoming too confident when early investments went well? How does Roelof prevent relying on past failures as a reason for turning down opportunities today? What can investors do to retain a very flexible mind? Why does Roelof believe you are only as good as your next investment?

5.) Sequoia’s Edge: How does Roloef think about what it takes for Sequoia to retain it’s edge at the top? How does Roloef measure the success of the Sequoia scout program? How did they structure it? How has the structure changed? What do they plan to do moving forward?

6.) Board Membership: How would Roloef evaluate his current style of board membership? How has that style changed over time? What elements did he find challenging? What advice would Roelof give to new board members adopting their first board seats?

Items Mentioned In Today’s Show:

Roelof’s Favourite Book: Man’s Search For Meaning

Roelof’s Most Recent Investment: mmhmm

As always you can follow Harry and The Twenty Minute VC on Twitter here!

Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC.

Source: https://thetwentyminutevc.com/roelofbotha/

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Private Equity

Private equity investor Centerbridge Partners backs Syncapay’s acquisition of Wirecard North America

From: FinTech Global Syncapay has announced that it has bought Wirecard North America, marking another page in the story of the collapse of the scandal-ridden former FinTech giant. Wirecard imploded this summer after a suspected multi-billion dollar fraud was unearthed. Since then the company, which was once hailed as one of Germany’s biggest FinTech success […]

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From: FinTech Global
Syncapay has announced that it has bought Wirecard North America, marking another page in the story

Source: https://www.altassets.net/private-equity-news/by-news-type/deal-news/private-equity-investor-centerbridge-partners-backs-syncapays-acquisition-of-wirecard-north-america.html

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Private Equity

Gulf Capital backs CWB as part of $60mln IP platform build

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The post Gulf Capital backs CWB as part of mln IP platform build first appeared on https://africacapitaldigest.com.

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