Do's and don'ts
Friday, May 11, 2007
THE closing question in our survey was "in the light of your experience, if you had one piece of advice to give to new entrepreneurs seeking to raise funds for their business, what would it be?"
The following is a selection of the responses we received.
1 With regard to early stage financing, unlike the young man quoted in the introduction to our survey, the entrepreneurs who completed our questionnaire have a much more sanguine approach:
It's always best to use only your own money at first, if at all possible.
Do it internally (family and friends) first before looking for outside funds. Cheaper and easier.
At start-up the most important thing is your network. You can benefit a lot from a favourable network with business partners, family and friends, and potential customers. If you have any good ideas and programmes just keep pushing.
At the early stage the company should focus on debt financing, while at the strong growth or expansion stage, it should go for private equity.
To prove your business model, use business angel or your own money.
Raise just the amount needed instead of raising a lot of money and getting heavily diluted at the beginning.
Too much money at the very beginning is not a good thing.
Start early, be thrifty.
2 Linking on from this last point, several respondents emphasised the crucial need for careful financial planning to avoid running out of cash:
Must have an exact computation on the finance budget; make sure you have enough capital to carry out any business activities, especially in the first and toughest year.
A good company should always be conservative in finance. I always keep at least six months reserve so that I never have a problem with cash flow.
Entrepreneurs should realise the cruelty of reality and try to reduce the burn rate.
3 With regard to later financing rounds, and in particular the involvement of VCs, our respondents had a lot of advice to give:
Fundraising should focus on value innovation. Look at how your company can add value to the other organisation and it will be easier to get investments.
Scientists or technology engineers should focus on their own expertise and look for professional business people to raise funds.
Build up company value. If your company has both the technology and the clients, the VCs will naturally come to you. You never have to worry about the funding.
Look for strategic investment not hot money. Strategic investors will bring more benefits to a high-tech venture as compared to pure cash benefits from private equity.
For a foreign entrepreneur setting up a company in China, it's better to find a local investor or partner with a strong background or relationship with the government and related organisations and companies.
Be practical. Don't hope to be a millionaire just by working out a story. Put your nose to the grindstone.
Avoid VCs as long as you can, and don't raise too much.
4 Looking further down the road towards IPO, one respondent had this to say:
The company should regard IPO as a process of strategic fundraising instead of a shortcut to become rich.
The company must try to avoid being impatient to get to IPO before its core competence and business model is mature.
5 Finally, some general pieces of advice regarding fundraising:
Find "good" investors, not just someone who has money.
Be patient for many rounds of negotiation, and be sensitive enough to select your ideal investors.
Keep at it, because a lot of it has to do with timing and who you meet at the right time.
Have a clear blueprint about your company's profit pattern. This is what investors really care about.
The following is a selection of the responses we received.
1 With regard to early stage financing, unlike the young man quoted in the introduction to our survey, the entrepreneurs who completed our questionnaire have a much more sanguine approach:
It's always best to use only your own money at first, if at all possible.
Do it internally (family and friends) first before looking for outside funds. Cheaper and easier.
At start-up the most important thing is your network. You can benefit a lot from a favourable network with business partners, family and friends, and potential customers. If you have any good ideas and programmes just keep pushing.
At the early stage the company should focus on debt financing, while at the strong growth or expansion stage, it should go for private equity.
To prove your business model, use business angel or your own money.
Raise just the amount needed instead of raising a lot of money and getting heavily diluted at the beginning.
Too much money at the very beginning is not a good thing.
Start early, be thrifty.
2 Linking on from this last point, several respondents emphasised the crucial need for careful financial planning to avoid running out of cash:
Must have an exact computation on the finance budget; make sure you have enough capital to carry out any business activities, especially in the first and toughest year.
A good company should always be conservative in finance. I always keep at least six months reserve so that I never have a problem with cash flow.
Entrepreneurs should realise the cruelty of reality and try to reduce the burn rate.
3 With regard to later financing rounds, and in particular the involvement of VCs, our respondents had a lot of advice to give:
Fundraising should focus on value innovation. Look at how your company can add value to the other organisation and it will be easier to get investments.
Scientists or technology engineers should focus on their own expertise and look for professional business people to raise funds.
Build up company value. If your company has both the technology and the clients, the VCs will naturally come to you. You never have to worry about the funding.
Look for strategic investment not hot money. Strategic investors will bring more benefits to a high-tech venture as compared to pure cash benefits from private equity.
For a foreign entrepreneur setting up a company in China, it's better to find a local investor or partner with a strong background or relationship with the government and related organisations and companies.
Be practical. Don't hope to be a millionaire just by working out a story. Put your nose to the grindstone.
Avoid VCs as long as you can, and don't raise too much.
4 Looking further down the road towards IPO, one respondent had this to say:
The company should regard IPO as a process of strategic fundraising instead of a shortcut to become rich.
The company must try to avoid being impatient to get to IPO before its core competence and business model is mature.
5 Finally, some general pieces of advice regarding fundraising:
Find "good" investors, not just someone who has money.
Be patient for many rounds of negotiation, and be sensitive enough to select your ideal investors.
Keep at it, because a lot of it has to do with timing and who you meet at the right time.
Have a clear blueprint about your company's profit pattern. This is what investors really care about.
Business Besides Oil
