Are you financially sophisticated?

What do crowd-funding factoring, carbon fiber guitars, and designer seeds all have in common? No, this is not the start of a goofy joke – they are all companies who closed funding rounds this summer: P2Bi, Viktorian Guitars, and Evolutionary Genomics.

We’ve seen 12 companies secure angel funding so far this year and we’ve started to notice a pattern. Companies who are able to seal the deal with investors are generally more sophisticated than those who are still waiting. Is that a big shocker? Probably not, but how can your start-up get on the path to financial sophistication quickly? Here’s three points to consider:

 

  1. Plan a financial structure that is friendly to early investors – If you are raising a seed round of $500k now, and will still need to seek significant follow-on funding, your initial investors run the risk of getting diluted. Dilution renders their investment much less valuable than it was initially. Many RVC Investor Forum Angels have had this experience; it’s unpleasant and off-putting. Sometimes it’s enough to cause an Angel to hang up their investor shoes for a while. Do your best to keep your initial backers’ investments strong and let them know that dilution is just as much your concern as theirs.
  2. Term sheet – Have the term sheet structured ahead of time. Many investors might be interested enough to participate in your deal, but few are willing to put in the time to help you structure your deal. Make the job of your lead investor easy by having all of your legwork done ahead of time. What if you don’t have the first clue about a term sheet? Start with a tool like the WSGR Term Sheet Generator. Really do your homework and aim to understand the term sheet that pops out of the generator. Next steps, tweek, change, modify, and improve it!
  3. Valuation – Really think hard about this. There are many schools of thought about what gets factored into a valuation. David Fein from ValuSource will be discussing this topic at the Colorado Capital Conference. Do you have a product on the market? Revenues? A Patent? Or is your valuation based solely on the three years of backbreaking 90hr weeks you’ve put into the business. Here’s a good rule of thumb. If you can grow organically and will be able to continue momentum without outside investment, then go ahead and keep that valuation high. But if your venture requires outside investment to survive and grow, then lower that valuation and sweeten the deal. We’ve seen a few valuations drop from $4M+ to little over $1M. Sometimes, that’s what it takes to get the job done!

Two reasons why the 24th time is the charm

The 24th Annual Colorado Capital Conference. 24th Annual. That’s a lot of years holding the same conference in the same town for basically the same purpose. Rockies Venture Club has been supporting entrepreneurship in Colorado for a really long long time.

I’m 35. When the first annual Colorado Capital Conference was launched, I was 11. I was living in Maryland with my parents and all I knew about Denver was that it was where my dad went on a business trip once and brought me back a clear plastic box filled with polished stones. He also told me as he tucked me in under my frilly pink bed spread how I’d like to live in Denver someday. He was right. Anyway, the point is, it was a long time ago.

How many companies have been funded after pitching at a Colorado Capital Conference? One? Ten? Fifty? Frankly, I don’t know. I haven’t found any metrics about this conference in any of the dusty boxes in the storage unit that houses two decades of Rockies Venture Club history. To be honest, I haven’t looked very hard. I’m just trying to make the 24th Annual the best year for this conference.

This year we are doing things a little differently. We will choose great companies to pitch and we will coach them so that they are sure to put their best foot forward – all that is the same. We can promise two big changes that will hopefully get solid relationships forming between investors and entrepreneurs.

 

  1. Our Preview Gala on Monday Oct 8th. Companies will each occupy a cabaret table and investors will be able to mingle between them, match names to faces, and talk with founders over drinks and appetizers. Good for entrepreneurs- investors who are interested will pack into your pitches on Tuesday. Good for investors- no need to use the coin toss method of deciding whose pitch you will watch.
  2. Investor Forums on both Thursday 11th and Friday 12th. Investors only please! This is the meeting where investors discuss deals, create alliances, and syndicate on deals to cover rounds. Without the Investor Forum, nothing gets accomplished. We currently have 50 Angels in the RVC Investor Forum and have partnered with both High Altitude Investors in Colorado Springs and NoCo Angels group from the north end of the state. There’s even some talk about a new Women’s Investor Group and Vail Investor Group.

We hope you can join us for both the Gala and the Tuesday Conference!

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