'I’m dogmatic about crowdfunding for cash to prove demand for what you’re doing.'
TweetShareShare As part of our Founders + Funders SF 2019 summit, held in partnership with Seneca VC, we brought together an exciting group of startup founders and investors for a day of learning, networking and growth.
Our whole thing is, with startups, you want to prove demand for your product or service before you invest in supply. And by supply, I mean wasting years of your life trying to chase an equity round. Only 1% of companies, regardless of their gender, ever raise VC. So for the 99% of us, we have to look for alternative options. And I’ll get into it more, but I’m excited to talk to you about raising cash and monetizing your products, your services, your mission, your vision, your dream….
Karen, I’d love to start with you because I know you do a lot of advising of startups, and you’re a founder and CEO yourself. What are your top two to three considerations when you’re talking to founders about what options they should pursue? Karen: It’s definitely about whether you have a business or not, and whether you have a product that people want. That’s the first thing you should be thinking about before you think about funding.
On the topic of crowdfunding, are there patterns that you’ve seen and the kinds of businesses that tend to do well on your platform or similar platforms? Karen: The entrepreneurs who do well are the ones that have the biggest professional and personal networks and that are sellers and marketers, and people that have a well-honed pitch who go out, they live it, they love it, 1,000 times a day, and everyone knows that they’ve been doing this thing.
The wonderful thing about lending is that you don’t have to give up equity to get the money, so it’s perfect to go to a lending option when you actually have the cash flow and know how you’re going to allocate those funds to improve the financial position of your company. So just like every other kind of capital you receive, you need to know what your use of funds will be and how that can improve your business.
Parker, what are some of the most exciting options you’re seeing that are non-venture, as the undercover venture capitalist? Parker: There are a bunch of new debt products that are exciting if you have cash flows, if you have a real business. So I’m looking for like a 1% chance of a really unreal business. But if you’ve got a real business, you can finance it with cash flows, with customers, there are now options like Earnest, and their model is “We’ll loan you money.
I run an AngelList syndicate, which means I go out and find good companies, and then I write up a deal memo, and I send that out to my backers or LPs, and they say, “Yeah, I want to do that deal,” or, “no, not that deal.” But really, all it is, is I do each deal as what’s called “special purpose vehicle” or SPV. You’ll hear this term. It’s just a venture fund with one deal in it. We just like to make it sound fancy. So that’s what AngelList ultimately does.
Roshawnna: I think I said, “Right tool for right job.” But a piece of advice I give to founders that I think is useful is that you get a lot of “no”s in the process, and the thing to remember, that I’m looking for that one great company, and it’s really hard to know. So I get one shot to say yes or no to you. It’s a really high-stakes thing for me, but there are an infinite number of people like me. So you get the “no”; you move on. You take the 200 meetings.
Question from the audience: Does crowdfunding, debt funding, or syndicates take your equity? How is this different in each scenario? Karen: For iFundWomen, it’s a rewards-based crowdfunding platform. We do not take equity. You’re selling your product, your service, your mission, your vision, your side-hustle, your dream, the fact that you dog walk, anything that we can monetize. And we will find anything that you can monetize because this is my superpower [laughter].
Karen: It’s fine to be investing in your business. And if you need to invest more than cash flow will allow, that’s great. That’s actually what equity financing is good for. If you’re buying a customer, and it takes six months to break even, but you’re going to make a lot of money because they’re going to stay with you for six years– the faster you grow, the more money you “lose.
You can also create that problem in other ways too. You can have too many seed rounds, and you can do all sorts of funky stuff. Talking to people about what your milestones need to be at two years before you need to be there is going to help you make sure that when you get there you don’t get any nasty surprises.
Roshawnna: What I would say about venture debt, which typically isn’t available this early, is sometimes venture capitalists are scared of that because the venture debt folks and venture capitalists are misaligned. If you have a little bit of venture debt and a lot of equity and you mess up, the venture debt people take the whole company, and they sell the pieces, and they’re just worried about getting their money out. That makes us a little bit nervous.
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