A few months ago I started working on a next round of funding for our company, Splunk. As an exercise I decided to keep notes on the progress of the fund raising in hopes of looking back and perhaps sharing a thing or two with other entrepreneurs. I’ve raised a lot of venture money (this is my sixth venture backed start-up) and learned to avoid many of the traps most first time entrepreneurs fall into. This time around I had a chance to apply several best practices I’ve seen over the years and invent a few new tricks that really helped things go smoothly. We closed a later stage round of financing on outstanding terms in just sixty days from first conversation to money in the bank.
Whether you’re raising a Series A round or a mezzanine round, you can sail through the process if you are prepared and you avoid the common pitfalls. My hope is to find enough time to tell the story of how we pulled this off and offer tips and insights along the way. Feel free to add your comments or contact me directly with your feedback and questions. I’ll try to post a bit every few days as time permits.
No doubt the current market for funding is a sellers market. The supply of capital for early and late stage companies is abundant. However, most entrepreneurs and management teams forget this simple fact. When you raise money you are selling equity in your company. You are inviting investors in to purchase part of what you have built and what you’ll continue building long after they invest. Why is this important? Its an important distinction. Compare selling equity in your company to selling a home. When you’re selling a house you feel very invested in the decision of who you sell to and what price and terms you get when you sell. You remember all those weekends you spent remodeling the kitchen or painting the master bedroom. And when you open your house up for potential buyers to tour, you’re letting them into the most private parts of your life.
Tip #1: When you raise money you are selling equity in your company. Its a privilege not a right for investors to take a look and consider partnering up with you.
Selling equity in your company is no different. You’re inviting potential investors in to learn all the ins and outs of your strategy, execution and plans. But remember, you’re inviting them. Its a privilege not a right for investors to take a look and consider partnering up with you. I make this point first because most entrepreneurs and management teams forget this very fact. Drive this point home with your team and everyone will feel much more invested in the fund raising process. You’ll all be much more discerning about who you invite to your open house and how you conduct the conversations.