Accelerators are not VCs: how should they approach portfolio management?

In the previous post we suggested that startup accelerators should behave more like investors, noticing that many of them could do a better job helping their portfolio startups. Just to summarize, the root of the problem is that they often lose regular contact with their graduates after the program. As they stop receiving regular updates about the progress of these startups, it means they simply cannot help even if they could. The main reasons for not staying in touch regularly are:

  1. Securing a successful exit for portfolio startups is simply not one of the key objectives for many accelerators, especially those backed by public or corporate money.
  2. The operations of most accelerators are focused on the… acceleration process – collecting and reviewing applications, acceleration program, organizing demo day – all of which are very time and resource consuming. As a result, insufficient resources and attention are usually devoted to following what happens with the graduate companies.
  3. Most of the information gathering process is done with tools that were not designed for this particular purpose (email, Dropbox, Excel). It makes managing the process time-consuming and inefficient, each time more so with the ever-growing number of graduates. By the way, we recommend you read this post, even though Fundacity was not mentioned there yet as a solution. (We are working hard for Marcin to revisit;)

Are only the accelerators to blame here? You could argue that it is in the founders’ interest to update their investors too, right? Yes, but think of the cost/benefit analysis they are likely making. Why would they spend time preparing regular updates to their investors if this information is given little attention and rarely acted upon? OK, let’s see how this situation could be improved.

The right focus: are all accelerators investors?

Not all accelerators are judged primarily on the number of successful exits.

The classic accelerator model involves taking a great team with promising idea, giving them office space, enough cash not to worry about such trivial things as food and accommodation, equipping them with knowledge, mentoring and contacts to grow their business during the duration of the acceleration program and then presenting them to investors on demo day. For all of that, an accelerator takes usually 6-10% of startup’s equity (most often in a form of convertible note) hoping for a nice return on investment when it becomes the next big thing.

However, in the last few years the accelerator business model has been evolving quite a lot. One clear trend is that now there is much more vertical specialization, a topic we covered in one of our earlier posts. Take Startupbootcamp as an example: they run a network of accelerators focused on FinTech (London), Internet of Things (Barcelona), Smart Transportation and Energy (Berlin), etc.

Another interesting trend has been an emergence of corporate and government funded accelerators. Unlike privately funded startup accelerators, which look to make money on exits, the primary objectives of those are often different.

Government-funded acceleration programs, especially popular in Latin America, are created to attract talent and promote technology entrepreneurship among their young populations. To become more attractive to founders, these programs often don’t take equity in the participating startups, which means they have no interest in their success post graduation. However, even if they do, the long-term benefits for the funder (growth of equity in startup portfolio) are not aligned with the incentives for the administrators of such programs. These are often private organizations, such as university incubators, that have no equity in participating startups, which means their main interest is in maintaining the flow of money to the program. As a result, their focus is limited to managing startup selection, distribution of funds, delivery of the acceleration program itself and, last but not least, making sure it looks good to the public, now.

Corporate accelerators vary in their approach to acceleration programs, but their general objective is to engage with startups to boost internal innovation and stay in touch with latest trends in technology. The successful exit of a graduate of their program is not necessarily crucial to meeting these objectives. At the end of the acceleration period, the corporation behind the program is thus likely to either acquire the startup, or simply lose interest in its future.

Just to summarise – as long as return on investment is not the primary objective of entities that fund accelerators (LPs), they will not focus on it either.

The right focus: accelerators are not VC funds

Accelerators need to rethink how they can best deliver value to portfolio startups.

Even if portfolio growth is one of their key objectives, accelerators have two types of limitations that hinder them from helping their portfolio startups as well as VC funds can do. The first limitation comes from the structure and value of their investment. Almost all have convertible notes that usually give them right to less than 10% of equity. As a result, they have no board seats and often no explicit right to information. The second reason is lack of sufficient internal resources that can be involved to deliver valuable support. Much of accelerator staff focuses on administrating the acceleration process and mentoring is often “outsourced” to external mentors.

Throwing into the mix a large and fast-growing number of graduates, it is clear that accelerators cannot apply the VC model for portfolio management. They simply have no capability to provide active engagement at high level of detail. What kind of model should they apply then?

We argue that the accelerators should be focusing not on rocket growth of their portfolio startups, but rather on increasing their chances of survival by helping them secure the next round of funding. Then VCs can take over and do what they are supposed to do. Aren’t demo days supposed to achieve that? Well, we all hear stories about those amazing demo days: excited media trying to identify the next big thing of the batch, investors queuing to talk with the leaders of the Google/Facebook/YouNameIt of tomorrow. The fact is that only absolutely top accelerators (mainly in the US) can organize such events. Most of demo days outside of big tech hubs don’t end up with immediate investment offers and the interest and attention of investors is not easy to maintain – there are just so many sources of deal flow these days. So, the next day most of founders go back to basics: coding, hustling and growth hacking (or so they think;).

The main focus for accelerators should be to thus help their portfolio startups raise funds after Demo Day. How to do that? They needn’t do much more than what they are doing now:

  • Match mentors with graduate companies, not only the current batch;
  • Present all startups to investors and potential clients at regular events;
  • Collect startup KPIs relevant to raising the next funding round;
  • Increase the likelihood of connections by promoting all their startups via social media, events, workshops, or in a newsletter send to accelerator’s stakeholders; and
  • Never stop thinking about portfolio startups.

The key is simply shifting focus from the current batch to all startups in the portfolio. There are some good examples out there. Take hub:raum – a Berlin-based incubator backed by Deutsche Telekom. It is in fact one of their main objectives to take their portfolio startups to another round of funding. As an incubator they don’t have cohorts to showcase during demo days, so instead they organize so called Investor Days. They invite selected current participants, as well as graduate companies, to present their progress and give them chance to meet investors.

Another example is SixThirty, a FinTech accelerator based in St Louis. As some of their graduates leave St Louis after the program, Matt Menietti, the accelerator’s Venture Partner, makes sure he knows very well what they are up to. He asks them to send regular updates, with the focus on information and metrics relevant specifically to fundraising.

We will cover how to set up reporting from portfolio startups in the next post. Stay tuned and don’t be shy about sharing this post on social media if you liked it :)

Startup accelerators need to behave more like investors

Accelerators are still a relatively new type of startup investor, most of them having little or no record of returning money to their own investors, especially outside of the US. Seed-DB, a database of seed accelerators and their companies that tracks exits of accelerator graduates, lists only around 20 exits from non US-based accelerators. The leader is Seedcamp (UK) with seven exits; Nxtp.Labs (Latin America) and FounderFuel (Canada) are tied second with three exits each (disclosure: Nxtp.Labs is an investor in Fundacity). The non-US total number of exits is lower than Techstars or Y Combinator have each.

US-based accelerators dominate the whole list and there are good reasons for that. First of all, their graduates have the best access to later stage investors and corporate buyers, which are often other well-funded startups, although in that case the exits are often talent acquisitions, called acqui-hires, which usually return peanuts to investors, if anything at all.

There is however another factor in play. It usually takes a lot of time before a successful exit can happen and US accelerators are simply the oldest. Y Combinator was founded in 2005 and Techstars Boulder in 2006. London-based Seedcamp was founded in 2007.

Recent years have seen a huge growth in accelerator numbers outside of the US, as it has become much easier to start up and scale from anywhere in the world. At Fundacity we focus on emerging startup ecosystems (which is basically anywhere outside of the US), speaking with many of these accelerators on a regular basis. So far their focus, understandably, has been on selecting and accelerating startups. It takes time to find a niche, build a brand and develop the ability to attract the best startups. In the meantime however many startups have already graduated from their programs, some more successful than the others. As the portfolio of graduates mature, accelerators’ LPs will be increasingly interested in seeing returns on their investment. The question “How are you making sure my investment portfolio is growing?” is and will be asked more and more often.

One could argue that accelerators are limited in their ability to impact the growth of their portfolio. The first limitation comes from the structure and value of their investment. Almost all have convertible notes that usually give them right to less than 10% of equity. As a result, they have no board seats and often no explicit right to information. Another limitation is related to their modus operandi, which requires accelerator staff to deal with many administrative tasks such as managing office space, coordinating mentors, organizing Demo Days, etc. That leaves less time and resources available for mentoring, which is largely “outsourced” to external mentors anyway.

Indeed, making the right connections is where the accelerators can add the most value to their startups. This is even more true in emerging startup ecosystems, where accelerators often act as local startup hubs, which means they can usually easily get in touch with people who can help their portfolio startups. They do that very well during the acceleration programs, but that support often ends after the Demo Day, even though the needs of these startups remain largely the same. All of them welcome introductions to potential mentors who can help the startup grow operationally and to investors for capital necessary to execute.

It sounds very reasonable and I am sure you think this is something that must be happening. Well… The first step for accelerators to be able to help their portfolio startups grow is to actually know how they are doing. Unfortunately, the communication line after the end of the acceleration program often breaks.

(Not) staying in touch

At Fundacity we regularly speak with accelerators from around the world and ask them about how satisfied they are with knowledge about their portfolio startups. We started asking about it during the customer development process for our portfolio management tool for accelerators. The message was very clear – “we think it’s very important to stay in touch but we don’t really do it well enough.”

Actually, on the scale 1-5, the usual answer we get is 2 or 3 and that usually sounds quite optimistic. No wonder, it’s not easy to keep in touch with startups after they graduate from acceleration program, which is due to the combination of available resources vs. ever increasing number of graduates. Let’s expand a bit on this point:

1. Focus and resources. The key accelerator activities and resources are focused on the following process: selection, acceleration, presenting startups during the Demo Day. Then it starts again. All of these activities are operationally time consuming and require immediate attention due to clear deadlines. As accelerators need to control costs, they usually have no additional resource dedicated to keeping in touch with portfolio startups, so this task is pushed down the list of daily priorities. We sometimes see a junior associate, or even a marketing person, performing this role.

2. Large number of graduates. Depending on the program, one cohort comprises usually 10 to 20 startups. For a 2-year-old accelerator this can mean even 50+ startups to deal with. Even though there are reporting tools available on the market, there are rarely used. First of all, many accelerators simply do not recognize portfolio management important enough to spend money on, so they end up relying on email communication and Excel to record the information. As collecting and formatting information this way is very time consuming (e.g. there are different formats of updates, need to send reminders to slackers), it usually ends up not being done well and provides limited actionable insights.

No wonder that accelerators also encounter pushback from founders, who do not see the much sense reporting to accelerators about their progress if they receive no value in exchange. All this leads to situations where updates are rare, not consistent and depend too much on founder good will, rather than on habit and mutual benefits. It shouldn’t be a surprise to hear stories how accelerators found out in the media that one of their startups raised additional capital.

There are however many good practices in that space and the accelerators that break this cycle are the ones that will benefit the most. We will describe how it can be done in the next post.

Launching a startup accelerator – fundraising and lessons learned

These days seems like everyone is opening a startup accelerator or incubator, even Disney has one! To the wider public they may all be similar, but there are surprisingly many differences in the way they operate. At Fundacity we provide selection and portfolio management tools to many accelerators, seeing first-hand their various operating models and approaches to helping startups grow.

We are really excited about the evolution of accelerator business models and their modus operandi and share our observations on this blog. Our last post was about launching a startup accelerator, where founders from Brazil, Australia and United Kingdom explained how they decided to start up and how they validated the initial idea. Today we continue their stories, explaining how they raised funds and what lessons they learned from their journey.

Raising initial funds

Accelerators don’t scale.

Rishi and George, the founders of IncuBus Ventures, heard that a lot when pitching their idea to various angel investors. Most of them were not interested in making a large investment, preferring instead to deploy capital into businesses that can scale and provide larger returns, faster. It was very disappointing, but there were still other funding options to consider. Government grants were quickly ruled out, as IncuBus Ventures did not fit the strict requirements of any of the current programs. The next option the founders explored was online crowdfunding, as people investing via such platforms don’t focus that much on financial returns, often simply being interested in backing a project they believe in. That seemed well aligned with IncuBus focus on helping young entrepreneurs start up. They ran the first campaign via IndieGoGo, but it turned out that reward-based crowdfunding was not a good fit for a startup incubator.

What did however work was equity crowdfunding, for which they used a platform called Seedrs. That campaign attracted some of the angel investors who were approached at the beginning, as well as a number of professionals working in the City, London’s financial district. IncuBus Ventures takes a small equity stake in each of the incubated startups, which made becoming its shareholder much more attractive to investors than any t-shirt or free bus ride that could be offered as a reward at IndieGoGo.

Acelera Partners fundraising process was more straightforward, although by no means easy, mainly due to various challenges presented by the daunting Brazilian bureaucracy. The post-accelerator was funded by an investment fund that had been raised initially from Microsoft, Qualcomm, Banco Espirito Santo and local development agency AgeRio. The biggest challenges when creating the fund were related to getting relevant approvals from Brazilian Securities and Exchange Commission, which required hiring a fund manager, fund administrator, an auditor and a technical advisor.

The most obvious source of funding for Venturetec Accelerator were telco, banking and media corporations based in Asia Pacific region, as they would be one of the main benefactors of the accelerator’s program. Another option were the corporations from other sectors, but already interested in startups and trying to get access to the most promising ones by sponsoring hackathons, startup events and competitions. Even if it wasn’t that difficult to arrange meetings with their top executives, securing financial commitments without a prior track record in that space was a different story.

As the corporate decision making machines tend to act slowly, Venturetec founders seek to establish closer relationships and demonstrate their knowledge in the area by providing consulting services to staff of internal corporate innovation labs and accelerators. The new approach to fundraising also includes the plan to raise separate funds with each of the regional financial centers: HK, Singapore and Australia. Similarly to the case of IncuBus Ventures, government money is not yet a viable option, particularly in Australia.

Overall, attracting private funding for startup accelerators is not that easy. Even though corporations are increasingly more ready to open their wallets, it’s often the governments that are stepping up to fill this gap. This trend is the strongest in South America, where Chile (Corfo) and Brazil (Apex and CNPq) lead the way, as well as in Europe, where more EU money for startups is becoming available. In Asia, Singapore seems to be most committed to building financial foundations for a strong local startup ecosystem at seed level.

However, as demonstrated by the example of these three accelerators and the number of others being created around the world, there are many ways to get creative and raise capital outside of public funds.

The journey

Everything takes more time than you think.

Any entrepreneur quickly notices that the world around them moves too slowly compared to their own pace and building anything is a longer process than expected. In these particular cases, at least it’s a fun journey. Goncalo from Acelera Partners couldn’t stop smiling when he was telling us about his experiences to date and it’s not only because as Brazilian he smiles a lot in general. For Goncalo, the particularly rewarding part of building a business focused on the startup community is that it’s full of very open and positive people. At Fundacity we couldn’t agree more. If your job consists of talking every day to people who have big plans, are excited about their job and are often on a mission to change the world – it’s simply contagious.

Rishi from IncuBus Ventures enjoyed this part a lot too and his advice is to talk to as many people as you can and then more. The startup ecosystem thrives on connections and networking, providing perfect conditions for serendipity. Even the most random of contacts may lead to a great insight, epiphany or a new opportunity, so best make sure not to leave any connection unexplored.

Trey, the founder of Venturetec Accelerator, particularly enjoyed the validation stage of his journey. He had a very clear vision for his accelerator and knew that the buy-in from corporations from the very beginning would be the key to success. One of the most satisfying moments on the way to the launch was seeing positive and sometime even enthusiastic reactions when he presented that vision and his plans for Venturetec. The second best part was building a network of mentors.  Many high-profile people in corporations he spoke with were very interested in participating. That meant mentors in the program would have the exact profile as potential buyers of products created by startups in Venturetec’s acceleration programs. Finally, seeing entries from high quality startups to the first program was the moment when it all came together.

Lessons learned

What would they do differently had they started now again? In addition to giving himself a strong booster of patience, Trey says he wouldn’t go to media as early as he did, expecting faster progress on many fronts. He would also devote more time to all these less fun admin things that unfortunately need to be done. Goncalo would communicate more. Actually, the expression he used was “over-communicate” – explain his thinking and plans better, in more detail, to more people. This is in line with Rishi’s advice about giving serendipity a chance.

So, there we go. If you want to launch a startup accelerator:

  1. Find a niche in the market to stand out,
  2. Network and over-communicate to make sure no opportunity and contact is left unexplored,
  3. Be patient, but persistent, as things always take more time.

If you liked this post, have additional questions or would like to feature your story in the future posts, let us know in the comments below of via our Live Chat at Fundacity.com.

We will be continuing the series about best practices from accelerators worldwide. Sign up to the blog to make sure you don’t miss anything new.

Launching an accelerator – where to start

These days seems like everyone is opening a startup accelerator or incubator, even Coca-Cola has one! To the wider public they may all be similar, but there are surprisingly many differences in the way they operate. At Fundacity we provide selection and portfolio management tools to many accelerators and incubators, seeing first-hand their various operating models and approaches to helping startups grow.

The concept of startup accelerators is still evolving and we want to capture the most important trends by sharing some of our observations and best practices used by incubators and accelerators around the world. We have already written about the importance of finding a niche to attract the best startups and today’s post will be about launching a startup accelerator, through founder stories from a Brazilian post-accelerator (Acelera Partners), a London-based incubator (IncuBus Ventures) and an accelerator from Asia Pacific (Venturetec Accelerator). Each of them has a different profile, founder background and own view about the best way to grow the next big thing.

Let’s see how they started.

Idea

It all starts with the problem.

George and Rishi, entrepreneurs from London in their early twenties, had been involved in the London startup scene for some time as founders and organizers of startup events. What they were missing in the ecosystem was an offer designed specifically for young people, like themselves, which focused on young people who were interested in starting up and looking for guidance how to do it. However, most of the accelerators seemed to be for people with prior business experience. They also saw the lack of focus on developing young entrepreneurs who ultimately are the reason behind the success or failure of a startup. Hence, IncuBusLDN’s focus on building better entrepreneurs via a tailored personal development course as part of the incubator. The initial idea was to create a co-working space for young entrepreneurs. To save rent costs, Rishi and George came up with an idea to set it up on a red double-decker London bus, conveniently fitted with wireless Internet, meeting rooms and mobile – in case they needed to relocate. However, they quickly realized that providing just a co-work wasn’t enough to make a difference to young entrepreneurs and that’s how the idea of the ‘entrepreneur incubator’ was born. The problem turned into a mission.

Trey Zagante is on a mission too. He wants to build a bridge between corporate and startup world in Asia Pacific region. Originally from Australia, while completing his MBA, he became very interested in the rise of accelerators, the movement started by Y Combinator in the US. Later he got involved as mentor in AngelCube, a Melbourne based accelerator and part of the TechStars Global Accelerator Network, as well as in Founder Institute, while working for a large tech company operating in Asia Pacific region. During that time he noticed that a typical three-month acceleration program was not very well suited for enterprise startups that often need to deal with very long product development and sales cycles. For that very reason they may have difficulties to demonstrate enough traction to investors during Demo Day, especially that the only traction that really matters for them is revenue.

At the same time, Trey noticed that many corporations in the region were increasingly interested in connecting with startups to boost internal innovation. Not only that, but corporations were becoming more open to sourcing products and solutions from startups. You no longer had to be a big tech corporation to have another huge corporation as a client. Venturetec Accelerator was born from merging these two observations. It focuses on enterprise startups that sell to telecoms, media and finance companies. The participants spend six months in the program, do not need to attend it in person and what they get is funding and revenue focused mentorship from and introductions to the very type of people as their clients.

In Brazil, the problem identified by Franklin Luzes was still different. While working for Microsoft he noticed there was a funding gap for startups that finished acceleration programs, but were not ready yet to receive VC funding. Many quality startups were dying as a result. His investment thesis was to start what he describes as a post-accelerator, which helps startups that are already generating revenues to scale their operations and grow faster.

So, there we go: an incubator, an accelerator and a post-accelerator. Each different, but each started to solve a real problem. This resembles the advice mentors give to founders – find a problem first and then the best way to deal with it.

Validation

Get out of the building.

Each of the three profiled ventures started with an innovative business model, so the only way for the founders to validate their ideas was by following Lean Startup principles and talking to people, lots of people.

Rishi and George were already known in the London startup ecosystem, having founded startups, worked in some and organized various startup events for startup entrepreneurs. That was a good start, but not enough. Rishi: “Don’t be afraid of chance encounters. You just don’t know which one may take you in an interesting direction.” That’s exactly how the idea of an incubator developed; from the conversations they had with other young entrepreneurs and… basically anyone who would listen.

Obviously, it’s not only the number of meetings, but also their quality that counts. The best ones often start from introductions to the right people. Trey says that for Venturetec, one of the most important people during the validation stage was Felix Lam, a member of the Hong Kong Business Angel Network and the chairman for The Hong Kong ICT Startup Awards 2014, roles that make him one of the most connected people in the local startup ecosystem.

Even if you don’t have the access to all the right connections from the outset, or can’t find someone as pivotal as super-connector Felix Lam, there are ways to build your own network of contacts.

Acelera Partners wanted to focus from the beginning on attracting more mature startups to their post-acceleration program. However, the founders quickly realized that to be able to select the best ones in that stage, they would need to get to know them much earlier. They decided to participate in Startup Brasil, a government program for early-stage startups, which also turned out to be a great way to enter the ecosystem – make valuable connections, promote their brand and validate the idea. Finally, to finish building the whole supply chain for their fund, they became a shareholder in one of the top accelerators in Brazil – Aceleratech.

To validate an idea, the Lean Startup movement not only advocates taking fresh air by talking with people outside of the building, but actually recommends building something to test reactions of future users and customers. Venturetec’s MVP was the soft launch of their program, while they were still fundraising. In the meantime, Trey was also relentlessly networking with key stakeholders of the future accelerator – particularly media, finance and telco corporations – to validate his key assumption about their interest in startups and willingness to get involved in the accelerator.

It’s clear from the experiences of these accelerator entrepreneurs that there is no such thing as talking to too many people when starting up. It may even be truer for an accelerator than a startup, as the numbers of stakeholders for them is higher. A SaaS or a marketplace startup first needs to validate their idea with prospective users, whereas a new accelerator needs to talk to all stakeholders right from the beginning: funders, startups, other accelerators, government, corporations, etc.

If you want to find out how they raised funds and what they learned from their experiences, please see the second part of this post here. To make sure you don’t miss the next posts about accelerator best practices, please sign up to our blog.

Profile of Brazilian angel investors – who they are, what motivates them

Last week we interviewed Cassio Spina, the founder of Anjos do Brasil, the largest angel association in Brazil. Cassio shared with us his thoughts about what it means to be an angel investor in Brazil and gave very useful tips for people who are interested to get involved in angel investing. Following on that interview, we would like to share some more data about the current profile of angel investors in Brazil.

Anjos do Brasil say that in 2013, 6.450 individuals made angel investments in Brazilian startups, providing them R$619m for growth. That means each of these investors contributed on average R$96k (c.US$43k) to their local startup ecosystem. Overall, angel investment in Brazil increased by 25% compared to 2012 and everyone hopes that trend will continue, given the important role that angel investors play in the startup ecosystem.

The high number of angel investors cited by Anjos do Brasil does not mean all of those people are actually angel investors. Dealbook.co, a crowd sourced resource for tech deals in Brazil, suggests this number to be closer to 200. People involved closely in the local ecosystem say the number of experienced active angels is much lower.

What’s the profile of the average Brazilian angel investor? Well, it should be no surprise that most of them are men. In fact, around 98% of them. The average angel investor in Brazil is 44 years old, most of them are professionals or entrepreneurs, although rarely in tech. This is because startup ecosystem is still young and there are not many people with relevant experience and profile, such as entrepreneurs with successful exits, who could become professional angel investors, . However, some of the successful angel investors in Brazil are foreigners such as Fabrice Grinda or Florian Otto, founder of Groupon Brazil.

Anjos do Brasil data suggests that most of people who made angel investments in 2013 devote around 20% of their time to startups. It shouldn’t be a surprise that they only make on average a bit more than two investments per year. Nevertheless, they look into the future with optimism, planning to almost double this number in the next two years.

The startup ecosystem of Brazil still lacks transparency and it’s hard to keep track of what successful entrepreneurs are currently working on. Therefore, for angels with limited time available to investing, it is difficult to have a good enough deal flow to make more investments. There are more problems still. Brazilian angels cite high taxes and a difficult legal environment as an important barrier to invest more. One of the biggest problems relates to a risk of investor’s liability, as highlighted in the World Startup Wiki for Brasil. Basically, if a portfolio company fails and does not have enough assets to repay all creditors, the government will look to collect the debt from the angel investors and founders. Angels that invest in limited companies (Limitadas, or LTDAs) are the most at risk.  For S/As, the local equivalent of a C Corp, it’s much more difficult to collect from shareholders, although shareholders with board seats in S/As may possibly be liable.  For those reasons, a lot of angel investors prefer to set up a foreign structure and use it as a vehicle to invest in Brazilian companies. That is both complicated and costly, so acts as a deterrent to many people thinking to start investing in startups.

What motivates Brazilian angel investors? Obviously, they hope for good returns on their investment. Interest rates in Brazil are falling, stock market is under-performing and real estate prices are peaking, so alternative investments such as startups are becoming more attractive for a large group of people. Many of them also want to apply their experience and expertise to new ventures, looking for personal satisfaction from growing new businesses. Others are excited to help grow a company that is solving problems they care about. Finally, there seem to be also patriotic motivations among a number of investors, who think it is important for Brazilian economy to promote these kind of businesses and they want to participate in that. Most of angel investors are interested in investing in IT (75%), mobile (50%), health (44%), e-commerce (42%) and entertainment (35%) startups.

We would like to thank Cassio Spina and Joao Kepler from Anjos do Brasil, as well as Drew Beaurline from Construct for sharing the data and insights with us.

 

Obrazek

Angel investing in Brazil – tips for beginners

As we found out from speaking with Igor Mascarenhas and Andre Barrence about the Brazilian startup ecosystem, a number of active Brazilian angel investors is rising. To find out more about angel investing, we have caught up with Cassio Spina, who is an angel investors and a founder of Anjos do Brasil, the largest association of angel investors in Brazil.

Cassio SpinaGood morning Cassio, thank you very much for finding time in your busy schedule to talk to us. More and more people seem to be excited about opportunities to invest in startups. You are an experienced angel investor. What personally attracts you the most about it? 

I am really happy to see that more and more people want to invest in startups. This is very good for the Brazilian startup ecosystem. As far as my motives go, there are two sides to this. The most important is the fact that I simply like being involved in creating new companies. There is just so much pleasure seeing a startup grow and knowing that I contributed to it with money and advice. The second aspect is financial. Startups are types of small businesses that can grow very big in fairly short time, so there is a huge opportunity for good returns on investment.

What return do you aim for when investing in a startup?

There are some projects with a great return (50x the initial investment), but there are not many of those. That’s why in the US they are referred to as unicorns. On the other hand, let’s not forget that not all startups are successful and you end up making a loss on many investments. What I can realistically expect is a return of 5-10 times on my initial investment, which should cover the losses and still make me good money.

How does a typical day of a professional angel investor like yourself look like? 

There are many activities I need to do pretty much every day and they can be divided into two types: sourcing new deals and taking care of my portfolio startups. Almost every day I evaluate new startup investment opportunities that are presented to me, often listening to pitches from enObrazektrepreneurs. I also speak a lot with entrepreneurs from startups, in which I have already invested, helping them whenever they have questions or need advice. I tend to be in touch with each of these startups every few weeks, to see how they are doing. My focus is always on helping them grow their business.

These are the things I really like doing, but there are many other I am not a fan of. That includes dealing with Brazilian bureaucracy, reviewing contracts, or resolving conflicts between startup founders. All of this is a part of my role too.

Could you give some advice to someone who is interested to start investing in startups? What are the most important features of angel investor?

In simple terms, the role of a business angel is to add value to the startup. Obviously, one way of doing this is through their financial investment, but the role of advisor and mentor can be even more important. The combination of both is called “smart money” and angel investor who can provide that needs to have relevant professional experience, knowledge and contacts in the area in which the startup operates. Good set of soft skills is also very important. I would emphasize an open approach and collaborative attitude. Also, an angel investor must be ready to accept risk and the fact it’s the founders who need to deliver. You just can’t be overly controlling and tell the founders what they need to do.

Can anyone become an angel investor?

I think everybody should have a chance to invest in startups, but it takes time to become ready to lead your own investment. First of all, you need to learn well how the process of angel investing works. The devil is as always in the details. Only with that you can start to recognize which of the opportunities presented to you may turn into valuable deals. It all comes with time and experience, as there are many things that need to be considered and looked at. A good way to start is to connect with experienced angels and gain experience while investing with them. Also, in this way you can reduce your risk and build foundation to become more successful later.

What kinds of startups do you like investing in? Is it possible to find startups with great investment potential in Brazil? 

Oh yes, there are many great startups in Brazil and I am always on a lookout for opportunities. Since I have lots of experience in technology I usually invest in startups with this kind of products.

How do you perform due diligence to find a great startup? What do you look for in particular?

At this stage you invest primarily in people, so the most important for me is the entrepreneur’s profile. I work only with people who I believe can take the project to the next level and who have the capacity to transform their companies into successful businesses.

Then I look at the opportunity. There needs to be a big problem that they solve and the solution proposed has to be both innovative and difficult to copy. I am looking for startups that can build a competitive advantage to raise entry barriers for competitors that will want to enter later. Finally, I look at how big the market is and if it can be monetized.

Do you think investment in startups can be as accessible to individuals as investing on the stock exchange? 

Angel investing is not yet popular in Brazil, but I think it should be exactly like you say. However, for it to happen, we need first to inform these new potential investors about opportunities in startup investing and teach them about the process. It takes time and the investment has to be easy enough to execute for novices. I would also welcome changes in law. We need better regulations protecting investors and create a friendlier environment to invest, something like they have in the UK or the US.

What is your most successful investment?”

I am proud of ZOEMOB. They offer individuals and families the means to help protect, monitor and remotely manage personal information and details that may have a significant impact on their personal and professional lives and on their relationships. It’s a great team and I feel there was a clear need for their product.

Can Brazil become THE startup hub for Latin America?

Fundacity is preparing to launch a new service that will enable Brazilian investors to co-invest small sums of money in local startups, together with experienced angel investors. This way more people will get access to exciting startup investment opportunities than it’s currently possible and their investment will help provide liquidity to the best Brazilian startups to accelerate their growth.

When preparing this offering we were asking ourselves obvious questions. Is Brazil the right country to do it? Is now the right time? Are there enough of good startups to invest in?

To answer some of these questions, we sat down with André Barrence and Igor Mascarenhas.  André is a president of SEED, a special program created by the government of the Brazilian state of Minas Gerais to transform it into “the most important birthplace and acceleration hub for tech entrepreneurs in Latin America”. Igor is an angel investor and also coordinates activities of startup accelerators that take part in Startup Brasil program.

Fundacity: Andre, Igor, thank you very much for meeting with us. The initiatives like SEED and Startup Brasil are ambitious, but whether you can deliver results will depend a lot on the political will and financial support. How does government support the growth of the startup ecosystem in Brazil?

ObrazekAndre Barrence: Thanks for having me here. Yes, you are right. Entrepreneurship has always been on the agenda of politicians and there have been many institutions created to support it. What changed recently is that the government is becoming much more involved and supports creation of various new programs that help entrepreneurs in different stages of growth. That means startups can now benefit from acceleration at early stage, like through SEED, and you also have a great program like Startup Brazil, which is for more mature startups and provides them with more opportunities to receive follow-on funding. However, this is just the beginning in terms of creating necessary conditions to grow the whole startup ecosystem. Government support for startups is essential, but what we really need is the involvement of private investors. Private capital in Brazil is currently not very interested in startups. There are few reasons for that. Many potential investors are simply not familiar with the opportunities around, neither with the legal framework related to investing in startups. It’s also a question of changing their mindset. Private investors are well aware of risks, but don’t often realize about the huge potential of such investments. We need to help them develop both this mindset and understanding.

Another side of growing the ecosystem, where government needs to be involved more, is the development of education focused on entrepreneurship. Now everything happens separately. Students learn from other students, startups from startups and investors talk mainly to other investors.

The biggest missing connection is however the one between startups and investors. SEED is very much involved in creating such links, but the government should do more too, taking example from the best practices from abroad. I particularly like how they do it in the US, Israel and New Zealand. In South America, Chile is currently ahead of us, but it won’t be long until they have to settle for the second place, behind Minas Gerais, haha.

ObrazekIgor Mascarenhas: I agree with Andre. There are many new programs supporting startups on national and regional level and this is great. By the way, among interesting local programs it is worth also mentioning Startup Rio. These programs not only provide financial support to startups, but also help with people development. The prime focus now is on seed stage to grow the ecosystem from the roots up.

So you really believe that Brazil can become a startup hub for South America?

IM: Brazil is a giant market and already a hub for many sectors in South America. The country is changing very fast and attracts more and more foreign investment. I don’t see why we wouldn’t become a tech hub, even in the next two years. There is certainly a potential for that.

AB: It’s not really the question if we can, we simply must and we will. We have all the potential that is necessary: big market, fast developing economy, talented and creative people and, finally, the government support and money.

What we miss is the culture of entrepreneurship and innovation and this is what we must focus our efforts on now. We need to change the culture to succeed.

How do you see the growth of the startup ecosystem in Brazil in the next 5 years?

IM: We are now working hard to build foundations for faster growth of the startup ecosystem. First of all we need to make a change in how entrepreneurship is perceived. We want it to be a viable career option for young people. Five years ago being entrepreneur was something crazy. Today you can see young people who understand what entrepreneurship is about. They are often children of entrepreneurs, so they have more support from their parents, they know more about programs available and what’s right for them. I wouldn’t say it’s widespread yet, but definitely a clear trend. All that means that the future potential entrepreneurs will be more prepared to start their companies

Another big change needs to be made around providing financing to startups. We already have angel investors, seed money and other funds but in reality the level of liquidity offered to startups is still relatively small. We must work to create initiatives introducing and supporting private financing. Finally, we must create an environment where investors will be able to have an exit and thus create the cycle of investment.

AB: The effects of everything we do now will bear fruit in the coming years. We have invested a lot in development of startups and many of them will grow substantially. With that, we will also have a new generation of experienced entrepreneurs, who will have relevant experience to help other startups and who can become role models to cultivate the culture of entrepreneurship.

I think one of the most important things that will happen as a result of having a bigger number of more mature startups in the ecosystem, will be the development of a second stage financing for startups. The startups will have much better funding opportunities because, amongst other things, the perception of entrepreneurship will change. There will be more people involved in startups, so more private investment will be available.

Can Brazilian technology startups help solve some of the problems Brazilian economy is facing today, like in healthcare and education?”

AB: Yes, I think there are many public problems that can be solved by entrepreneurs. Some of the most pressing and complex ones are in education, health and agriculture. In education for example, in addition to giving students computers, we should focus on ways to improve quality of teaching. There is also a lot of innovation that can improve our health services.

Startups of course won’t solve the problems by themselves only, but as they are focused on looking for technological solutions to problems, they can help others innovate.

IM: There are many great examples of startups that are already doing this. For example: EvoBooks is developing a new study model.‏

Appprova‏ has a mobile application platform that enables high school students to practice for their university admission tests. In Brazil private schools have better preparation system than public and this application creates a chance for public school students to prepare better. In health, ‎ProRadis‏ helps in make health sector more dynamic, improving work efficiency. Memed thinks that many problems in Brazilian healthcare are related to badly written prescriptions. You know, bad handwriting that is difficult to understand. So this app connects patients, doctors and pharmacists to create digital prescriptions.

Today we already have various startup related initiatives focusing on solving public problems. For example, in March we organised Rio Favela Startup Weekend.

Is it possible that a Brazilian startup of today becomes a future global company? What is the biggest Brazilian startup success story to date?

AB: Of course they can, they have all the potential. There are success stories already. Not many people know about it, but for example Akwan, a search engine developed in Belo Horizonte, was sold to Google in 2005. There is also Easy Taxi, a mobile app that started only two years ago in Rio and now, backed by Rocket Internet – the biggest e-commerce incubator in the world, is available in almost 30 countries worldwide. They have already raised $32m in funding.

Another Brazilian success story is Samba Tech, now the biggest provider of online video solutions in Latin America.

All of them have succeeded because they had a mix of an interesting business model, committed entrepreneurs and forward-looking investors. There are many more Brazilian startups with these key ingredients in the making.

 

How to attract the best startups to your acceleration program

Imagine an accelerator. Their program is amazing, the offer for startups second to none and the mentors assembled are master ninjas in their respective fields. They post the application online, do some buzz on social media and… get a bunch of random applications, some of which are not even from startups. This scenario already happens and is only likely to be more common.

At Fundacity we help many accelerators manage their application processes and wanted to share some of the best practices we learned from them. The first thing that the best accelerators do well is finding the niche, vertical or key differentiator that is strong enough to attract the best startups.

It’s getting crowded

The accelerator landscape is getting crowded and, for every new round, accelerators need to increasingly compete for the attention of best startups. This trend will only be stronger as new types of government-backed and corporate accelerators emerge. First of all, it’s difficult to compete with equity-free grants offered by government programs like Startup Chile, SEED (in Brazil) or Sirius in the UK. This model is being replicated in these countries that aim to attract foreign startups to boost local tech entrepreneurship and economic growth. Also, with each new round the quality of their programs and resources at their disposal tend to improve, which helps attract better quality founders and startups.

Corporate accelerators are still new and their value proposition not always clear. However, it looks like the number of them will increase, as more corporations are looking to startups to help them innovate. Their deep pockets and operational expertise in their respected fields will certainly be attractive to many startup founders. Today, tech giants like Microsoft and Google, consulting companies like Accenture and KPMG, media giants like BBC, telecoms like Orange (Orange Fab), T-Mobile (hub:raum) and Telefónica (Wayra) – all already have or are launching their acceleration programs. Even Coca-Cola has one!

On top of it, the economics of running a private accelerator are tough:

  • Private capital available to fund startups is still limited in many countries.
  • Operating costs of running an accelerator are higher than for early stage seed funds, as there are more resources needed (marketing, administration, workshops, demo days, office space, other perks for startups) to run a good program.
  • Exits take time and are difficult to execute in many countries, mainly due to high costs and legal hurdles to do IPO, as well as limited number of potential acquirers for tech businesses.

This all means that many of the active accelerators of today will not be around in the near future as, similarly to many of the startups in their programs, they will simply run out of cash.

Specialization

For all these reasons, a successful accelerator will be the one that consistently manages to attract the best startups to their program. How to do it? Become one of the top choice accelerators in a vertical or geography. Specialization increasingly seems to be the way to go, particularly in more developed startup ecosystems, mainly the US. Some of the examples include:

  • Mach37 is a US-based accelerator designed to facilitate the creation of the next generation of cybersecurity product companies. With this very niche scope, they managed to attract top experts in the field as mentors and looking for international startups to join their program.
  • Boomtown in the US focuses on the intersection of big data, media, and design. They help their startups with such things as branding and logo design, marketing, code feedback and usability testing.
  • Incubation Station accelerates only market-validated consumer product companies to help them more effectively manufacture, distribute, market and grow their products and services. Among the graduates of their program you won’t find typical Internet startups, but rather manufacturers of wipes, burgers, sauces, etc.
  • Amsterdam based Rockstart Accelerator actually runs two different programs: Web & Mobile and Smart Energy.

Accelerators that choose not to specialize in any vertical must find something else that puts them apart from the competition. This is very important, as most of them offer similar conditions. They are all mentor driven, their standard offer is usually approx USD 20k in cash and additional perks (estimated monetary value of which differs and real value is hard to measure), for 6-8% of startup’s equity, although accelerators in developing countries can take as much as 15%.

For example, Arturo Velez from Naranya Labs, a corporate accelerator from Mexico, says that startups are attracted not only by Naranya’s knowledge of mobile commerce, but also by the fact that they have offices located across Latin America and can help with international expansion.  Similarly, Nxtp.Labs from Argentina is perceived as the best internationally connected early-stage investor in South America and their new office in Silicon Valley will only enhance that standing.

Stand out or…

Accelerators themselves are in a similar situation to the startups they attempt to accelerate. Most of them are young, many have not yet found product/market fit and, as a group, they still need to validate their business model to investors and value to startups. The jury is still out whether the accelerator concept is going to survive, so what they need to do now is learn from their own experience and industry best practices, iterate and potentially pivot.

We are going to share on this blog some more of the best practices used by accelerators from around the world, so stay tuned and… be different. If you are interested in what Fundacity does, check out our website. You can even talk to us there via our Live Chat.

 

Find the right investor for your startup

We are continuing our series on “Hacking your fundraising”. We have already written about where to find the investors if you are an early stage startup and what you will need to give and what you should expect to get from your investor. This time you will find out how to decide if you have found the right investor for your startup.  We will focus on angel investors and accelerators, as they are the most common investors in early stage startups.

Human factor

Signing a contract with an investor is a bit like getting married. You will need to start sharing, meet regularly and commit to many things you may not always feel like doing. Although you are marrying rich, don’t forget it’s almost impossible to get a divorce with your investors and having a no-strings-attached relationship is not an option.

Like with any relationship, times might get tough when things are not going as planned – a fairly common issue in Startupville. It is therefore important that the relationship is based on mutual respect and understanding. A great investor will help you brainstorm when things are bad and will stay out of your way when you need the space to figure things out. For that very reason make sure you select your investor carefully and not go for the first one that flashes you the money. How to do it? Do your due diligence. In addition to using Google search, you can and should:

  • For angels: Ask them to put you in touch with a few of their portfolio companies. You should even go as far as selecting the founders you would like to talk to yourself. Try to go for the successful and the ones that did not go well. In the latter case, you are likely to find out more valuable information, because hard times present a better test of anybody. If the angel investor refuses to give you these contacts, this is a clear warning sign. Surprisingly, very few startups do this.
  • For accelerators: Talk to graduates of their programs. The list can be easily found on their websites. Best reaching out directly to the founders through LinkedIn. Simply ask them if they would do the program again. No response from a number of founders may be a warning sign.

Human factor is much more important when you look for an angel investment. In case of accelerators, you will deal with more people and the relationship will be intense for a relatively short period, during the program.

Terms of investment

In general the most heatedly debated terms in a term sheet relate to valuation. However, whilst financial terms are very important, the devil lies in the details, legal details. Investment terms, presented to you by investor in a legal document called term sheet, are a good indication of the relationship you may have in the future. Some things to be especially careful about:

  • Board seats. In general, if you agree to have investors on your board, make sure their vote is in line with the amount of equity they have.
  • Additional equity not linked to amount invested. Sometimes investors will offer non-cash benefits (e.g. mentoring, office, advisory) in exchange for equity. It is a normal practice for accelerators, but need to be checked more carefully when analysing an offer from angels. We wrote more about it in our previous post.
  • Valuation caps. This is an important point when your investor doesn’t get equity, but rather receives a convertible note for their investment. It is a very common practice when funding early stage startups. You can read more about it here.
  • Trigger events and conversion mechanics for a convertible note.
  • Reserved matters – list of really important matters where the investor has veto rights. Common examples include hiring and firing of key staff and raising additional funding. This means that without the investors’ consent the items cannot be approved by the rest of the board even if they form a majority.
  • Anything that looks weird.

The term sheet and related documents will be overwhelming. This is normal, so it’s better to ask and perhaps look stupid than not ask and actually be stupid. If you have questions about the investment terms like: “Why is your fund registered in British Virgin Islands?” or “What does it mean that you want to cap…?” – ASK. If they are honest, they will be understanding, open and not defensive. Remember, the deal will not fail because you ask questions.

Please do not treat the above as legal advice and, if unsure, show your term sheet to an experienced lawyer or another founder, preferably one who has raised capital from professional investors before.

Additional value

One of the things you should be doing your due diligence on, is how much you will get from the investors in addition to money. The most valuable are mentoring and introductions.

Mentoring

Accelerators are all about mentoring and most make the network of available mentors their key value proposition. That’s great, but mentors are not created equal. Study the list carefully and think if you would be excited to work with some of them. Then, while doing your due diligence, find out how much time mentors will actually have for you and how the mentorship works. The best arrangement is to have a small group of mentors work with you consistently through the whole program. Some accelerators (e.g. Techstars) organise mentor-startup speed dating at the very beginning of the program, which is something founders generally like.

Angels can and should offer mentoring too. If your prospective angel investor has already made investments in your space (not in current competitors!) and/or has operational experience running startups, there is a chance their mentoring will be useful.

Introductions

Your investors should help you grow your network of contacts through introductions. This means introducing you to other investors, potential clients, potential hires and anyone who can help you grow your business.

Even if you don’t secure direct introductions to investors from your accelerator or angel investor, you should not hesitate to name-drop to get introduced yourself. Never underestimate the power of brand and social proof, especially that investors, as a group, are famous for having herd mentality. What it means in practice is that when they see another investor already interested in you, they will more likely look at you with more interest themselves. That works even better, if it happens to be a name they already know well.

Thanks for reading and stay tuned for more. In the meantime, we would love to hear from you in the comments below. You can also subscribe to this blog and receive notifications when we publish something new.

Startup funding – what you get and what you give up

In our previous post we listed the main sources of external financing for early stage startups and where you can find them. Today you will find out what you should be prepared to give in exchange for their money, but also what you should be expecting to get. This is a continuation of our series “Hacking your fundraising”. You can see the whole presentation on that topic embedded at the bottom.

1. FFF – Family, friends and…fools

You get

Unless your friends or relatives are experienced entrepreneurs and can give you relevant business advice, the deal is quite simple – what you get is cash to run your business. On top of it, there is however a non-material bonus included. You will be getting an enthusiastic group of fans of your startup, who will cheer for you and talk about your product to everyone they know.

The amount of money you can get will differ on the number and wealth of FFF you involve, but commonly it will be up to 20k USD.

You give

The easiest arrangement you can make is to take money in a form of a simple loan that you commit to repay, with accrued interest, when you start making money. Another good option is to issue a convertible note, which converts into preferred or common stock at a discount (usually 20 percent, although currently often reduced to 10-15%) to the valuation in the next round, which usually involves professional investors. Granting stock in your company in exchange for the investment is much more complicated and should require involvement from lawyers, which at this early stage can be both expensive and time consuming. In any case, to avoid possible misunderstandings that can harm your relation with your relatives or future funding from professional investors, it is better to sign a legal document.

You need to be aware that there may be additional costs of having your friends or family financing your startup, especially if you don’t reveal to them risks involved, or if they don’t full understand them. If you got money from your relative promising that “this is a sure thing and nothing can go wrong”, in case it does, those family dinners may suddenly become very awkward.

2. Angels

You get

Angels are wealthy people with passion for startups, often being former entrepreneurs themselves. For that reason, in addition to money, you should expect to get valuable insights, helpful advice and contacts to grow your business. That is in fact what angels usually promise as their added value alongside the financial investment. Therefore, when reaching out to angels, focus on ones that actually have contacts or experience in the sector that is relevant to you.

You need to remember however, that in order for their involvement to be useful, your angel investor would need to have time and relevant experience to understand your business really well. That may not be a realistic expectation in many cases.  Angels are very busy as they usually invest alongside their other fulltime commitments such as running their own business. Don’t let that deter you. Keep hustling even after they invest because the non-tangible value is significant and you need to extract it.  Push to arrange regular catch-ups even if it means scheduling several weeks in advance.

Usually, angels invest from USD20-100k, although it may be more if you manage to get an angel group to invest.

You give

In exchange for their investment, angels will want equity or a convertible note, which is a form of debt that converts to equity when pre-defined conditions are met (called “conversion trigger events”). Sometimes angel investors require additional equity in exchange for their advice. If you agree to that, make sure to make granting of equity conditional on them delivering specific results. Otherwise, you risk taking someone on for a free ride. We recommend you use the Founder Institute’s Founder Advisory Template to help you structure the advisory relationship.

Once you have them on board, angels will often require you to send them regular reports about your performance, which means you will need to start sharing details of what you do. Some angels may also require some control of the business, in form of a board seat. It is not a common practice however, so think twice before agreeing to that. It is your business, you take the most risks and you should be the ultimate decision maker. By giving a board seat early on, you also set a precedence for later stage investors to do the same. You also risk that a small investor will have a significant say in the future fundraising rounds. They will push to have their rights protected and their requirements may be in conflict with that of your company, thus negatively impacting your negotiations.

3. Accelerators

You get

In addition to cash investment in your startup, accelerators usually offer office space, access to professional services (e.g. lawyers, accountants) and other business/technical resources such as free or discounted access to servers or various SaaS tools. However, their biggest value-add is supposed to be access to a network of mentors. These are people with relevant business experience, who will work closely with you during your acceleration program to help you grow your business.

Another benefit of accelerators is the connections that startups establish with other entrepreneurs. In each in of the programs there are between 10 and even 60 startups, all in one place and going together through very difficult times. This means that not only professional relationships, but often strong friendships are formed.

Finally, being an alumnus of a well-known accelerator definitely helps with introductions to VC investors, some of whom you might meet at the accelerator’s Demo Day.

You give

Accelerators take equity for their investment and services. It is usually 6-10%, often in a form of a convertible note, although it depends on the country as in some countries it can be significantly higher (20%+)

4. Venture Capital

You get

If you manage to attract VC investors to your early-stage startup, you must be doing a lot of things right. It usually implies you have a good product (usually post MVP) that solves a well-defined problem in a huge market ($1billion+). In addition, VCs look for a talented and balanced team, as well as impressive traction that can translate into hockey stick growth.

As opposed to most angels, VCs are professional investors that do this full-time, so in theory they should be able to give you more valuable advice and make better introductions than other investors. They may also get involved in the operational side of your business, for example by helping you make a high profile hire, analyze a new market opportunity, plan and execute an acquisition or position your company to be acquired by a large player.

VC investors are the ones you go to when you need more than $1m of funding.

 You give

At the early (seed funding) stage you are likely to give away up to 20% of the equity, although many funds, particularly outside of Silicon Valley, would want to take a bigger chunk of the pie. VC funds usually invest more than $500k in a startup, which means they will want some control of your business to make sure you are spending this money on things that help you grow. You can expect them to want to receive regular updates from you and often a board seat.

Remember, with VC investment you are getting a lot of pressure to make it big. They give you rocket fuel for your business and expect you to take them to the moon, then to mars.

Thank you for visiting us. Stay tuned for more posts. If you want to receive notifications for new posts, please subscribe to our blog.

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