Over the past twenty years or so, I have Angel Funded and helped many startups on their way to success and IPO.
But before that I helped them to get their Seed and Early Stage Funding sorted.
Angel funding … is what helped these startUps to get forward traction.
American Angels pitch&demo experience is what helped them with their strategic and VC investor pitches.
And you can join them too here: http://www.meetup.com/AmericanAngels
Various valued American Angel Investors helped them with drafting their business plans.
Angels helped with their funding strategy, and placed a strong money bet on their Success by financing their Businesses early on, and networked them on their way forth… Same as me we’ve helped upwards of a few thousand StartUps with Angel funding, with finding their Market, with lining up institutional Investors, and with finding their own colour of Success.
And in return I’ve been helped by all of my Angels to learn to support the young CEOs of the good and great StartUps to raise the hundreds of millions of dollars in investment needed for their startups to scale and grow their Marketplace.
And in all instances over time — I’ve noticed that companies fall into three different categories along the Fundability Curve. The Funded, the almost funded, and the unfunded. Or as some others call it the scale of Fundability… At the high end of this curve are the highly fundable companies, and all others follow…
These are the ones where the CEO has a track record, where they already have connections with investors, and they usually have no trouble getting funded. However on the other extreme is the low end of the curve where most companies seeking funding, reside because they’re just not fundable.
They’re just not fundable either because of faulty engineering, or because of faulty design. Or they are just pivoting and finding themselves and are not quite fundable … yet. Maybe they don’t have enough of the right stuff to attract attention from investors, or perhaps they have some glaring red flags that are going to kill their deal regardless of fundable the company seems. However, many of these unfundable companies grow and improve over time. They build their product, they flesh out their management team, they structure a deal for investors, and they move up this FC curve into the area of the potentially fundable companies.
They cross that threshold where investors will now pay attention to them, and they become what we call the “Fundable Company” or better yet the “Funded Company” speaking as if we are coming from the future… Because the good companies are already FUNDED even if they don’t yet have the checks in their pocket, or cashed in their bank account.
Now the fundable ones or what I call the already “Funded Companies” are great well before they are recognized by the Investors, the Markets, or the World. They are like “The Beatles” playing in the Liverpool cave style nightclubs and in Hamburg’s waterfront taverns.
They are Great and Funded in their own minds, because of the Success built in their own DNA from inception and by design. It’s just that the World hasn’t cottoned on to them yet. And my job as a Good VC is to make that matter visible to all.
So I use a scale method to get the StartUp Team from concept, to product, to market, and eventually to Exit. This progression is designed to help startups get feedback from the marketplace sooner rather than later.
Just like the RED BOOK concept helps you get in front of investors sooner rather than later, so is this Funded Company checklist that helps you to get there.
So how do you know if you have a Fundable or a Funded Company?
The Funded Company Method is structured around what we call the Seven Pillars of Wisdom or in our case — the Seven Pillars of Fundability:
A) The first pillar of Fundability is startup viability: This has to do with how well your solution matches the problem that you’re trying to solve, and what kind of market validation you’ve got so far, and what is your business stage? Are you all the way up to having customers already … or not?
B) The second pillar of fundability is your business model. This is things around your revenue model, your gross margins, the size of the market that you’re going after, and how fast that market is growing.
C) The third pillar of fundability is market strategy. This is basically, how do you get customers? And what’s your cost of customer acquisition? What kind of partnerships or other deals do you have in place that will help you enter the market well. And what about your competitive strategy? What kind of competitive advantages – in terms of intellectual property or other aspects – do you have that will allow you to compete effectively in the marketplace?
D) The fourth pillar is the management team. Here you rate yourself according to the experience of the CEO or other cofounders, the breadth and depth of your management team, as well as a board of advisors.
E) The fifth and final pillar of fundability is the deal. What does your potential for profitability look like? What are your financial projections? How fast are you going to grow? What’s the percentage of ownership for your deal? What’s your exit strategy?
F) And of course there is the EXIT pillar that holds the whole edifice up in the air and allows your company to have a Home so to speak. This Pillar is simply the knowledge of How soon can investors expect to get their money back and at what rate of return?
G) Finally this is the pillar that makes it all worth while. After the Exit we all get together and we Party like there is No tomorrow…
I give each of these Seven pillars equal weight and suggest that you need to score pretty close to 50% in each of these seven pillars in order to consider yourself a fundable company so that you can go out there and start raising money.
The Funded Company Method is designed to work for startups that are the typical high-growth company, where the investors expect to get their money back when there’s a liquidity event, typically an acquisition. It will also work for cash flow businesses, where the investors receive quarterly dividends or distributions from the company that will be a part of what their return is all about.
This system is also designed to work for companies that are seeking money from angel investors as well as the new equity crowdfunding that’s just starting to happen these days, because of the SEC releasing this June 19th the crowdfunding and Early stage Funding Dictum that “Everybody’s An Angel” aptly named “Title IV” Regulations as described in the Jobs Act. It’s truly IV for the StartUps and it’ about time to arrive three whole years after the White House enacted the Jobs Act back in 2012…
So here is the next set of House Supports for your StartUp:
The Seven Pillars of Startup Success:
A) Having a Full and Complex STARTUP LEADERSHIP TEAM. 1) Create a Full and mutually complementary StartUp Team of Co-Founders with skin in the game. 2) Recognize that You need a complex, fluid, and complete team to lead the startup forward, with full Faith in the product and the process, abundant passion, & excitement. 3) Domain Expertise, IP creation, and product development, should be the sole focus of the Early Executive Team. 4) Examine how well does your Team compare with Successful Leadership Teams and fill up the positions accordingly, because You cannot play soccer without fielding at least seven players and a goalie into the green. 5) As a matter of fact each Footie team consists of a maximum of eleven players (excluding substitutes), one of whom must be the goalkeeper. Soccer competition rules may state a minimum number of players required to constitute a team, which is usually seven. 6) Value the feedback you might have been given from Angel Investors about your team…
B) STARTUP VIABILITY. 1) Business Description – how convincing and exciting is your elevator pitch? 2) Problem/Solution – how well does your solution match up with the real problem? 3) Market Validation – what feedback have you gotten from the marketplace? 4) Business Stage – how far along is your business toward getting paying customers?
C) BUSINESS MODEL. 1) Market Size – how big is the market you are going after? 2) Market Growth Rate – how fast is that market growing? 3) Gross Margin – what is your gross margin on your product sales? 4) Recurring Revenue – what type of recurring revenue streams (if any) do you have?
D) MARKET STRATEGY. 1) Marketing Efficiency – how efficient is your marketing? 2) Partnerships – how are you leveraging other businesses to make sales? 3) Intellectual Property – what patents, trademarks, or trade secrets do you have? 4) Competitive Advantages – what advantages do you have over your competition?
E) MANAGEMENT. 1) CEO / Founder & CoFounders Experience – what type of startup experience does the founder and the founding team have? 2) Management Team – how experienced is the management team? 3) Board of Advisors – do you have a board of advisors? 4) Do You have a Board of Directors? 5) What does it look like?
F) THE IDEAL DEAL for a high growth business is to scale assuredly. 1) How fast you get to 100 Million in revenue. Financial Projections – how fast will you grow your revenue or profits? 2) Investor Split – what percentage of the company will investors own? 3) Milestones – how feasible will it be for you to achieve your milestones? 4) ROI Potential – what is the expected return on investment? 5) Time to Exit – when do you expect your company to have an exit?
G) THE IDEAL DEAL TO PARTY is the Exit for all StartUps and especially for the businesses that already have a growth curve and a strong cash flow. These businesses rock… 1) Rate of Return – how much do investors make on their investment? 2) First Returns – how soon do investors start receiving returns? 3) Duration of Returns – how long do investors continue receiving returns? 4) Sale of Ownership Interests – can investors sell any of their ownership interests? 5) Security of Capital – are there assets that could be liquidated to pay back investors in the event of business failure? There are three key benefits to observing the Minimum Fundable Company principles. First, you can find out where you need to improve your fundability.
This is probably the most important. By figuring out where your deficiencies are, and what you need to do to improve, so that you can get across the Fundability threshold and get in the game of raising money from investors. The second benefit is that you will get a sense of any of these red flags that might pop up that will kill your deal regardless of how fundable your company is.
And finally, the benefit is that you improve your fundability, get in the marketplace sooner, and get in front of the right Angel Investors to nail the process of raising money.
And that’s how it’s done…