Monday, July 2, 2012

First Steps in Raising Capital (Part 1)

The first article in a special 4-part series.


One of the most critical and least rewarding experiences as the founder and CEO of a startup is the exhausting process of raising your first round of capital.  The later rounds are easier, or at least more related to performance. When raising money, there is quicksand everywhere, and it's not always easy to spot things that will bog you down.

There’s no “right” or single way to raise your first round.  There’s no school to teach you.  Unfortunately, the only way to learn is through a potentially expensive process of trial and error.  In order to help people avoid some of these swampy entrapments, I would like to pass along a few tips based on my experiences taking in venture capital. 

1st advice –  asses if  using a VC is right for you ?


If you can start and continue to grow a company without VC funding, just do it!
  •  Assess your new venture to determine if it can realistically become profitable with less than 1 or 2 million dollars.  If so, you should first attempt to raise capital from friends and family -- “angel” investors. You can always go to a VC later.  By this time, your company may have sufficient traction or be close to break-even.  The VC terms will then be much better.
  • It’s my understanding that the Web browser toolbar company, Conduit, raised money only after the company was profitable. This made a huge difference in valuation and business terms.  I know it made a huge difference with under.me, a company that I am involved in along with Bar Refaeli and Dudi Balsar.  We pretty much bootstrapped, being careful with expenses, while leveraging our content and reputations to build sales volume.  We hit break-even in several months. 
  • When I founded my first two financial service companies it was very clear that both firms would need significant amount of capital to become profitable.  When you are in the financial services sector, finding the right investors can validate your business in the eyes of potential customers and regulators. 
  •  Venture funding comes with a set of complex rules that needs to be mastered. It's important not to confuse complexity with cynicism. I keep hearing cynical comments about VCs being unfair and abusive to founders. A Google search will reveal many horror stories, and so will www.thefunded.com. Though I often share the frustration, I disagree.   VCs are indispensable when it comes to building successful businesses – companies that otherwise could not have prospered. They don’t collect debt if the company fails, and they have helped make many entrepreneurs rich.
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I founded and ran 2 companies, www.fiftyone.com and www.payoneer.com . Between both companies we have raised US$41million in 16 rounds from 9 VCs and 40 angels. Both companies are now profitable with revenues that exceed $100MM USD


18 comments:

  1. hello sir thanks to give a such a very important information. i want to know that how i start my capital account.

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  2. Great tips to raise the capitals. Surely all the business person must read this blog to gain information.

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  3. I agree on the points you have made about the VC being indispensable for acquiring success. Moreover, nothing can be achieved if we do not take the risk. Acquiring capital can be tough but once one knows the tricks, he can progress rapidly in his business. Very informative share!

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  4. This title really gets my attention. And the detailed instructions are provided. It is good blog to read.

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  5. Starting up your own business is never easy, it's always going to seem like an impossible task until maybe even a year of two when you start to see a decent amount of profit. It might even take longer before you see good results. You seem to know exactly what to do since you own two businesses. Awsome job.

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  6. Great post! Your tips helped me a lot, thanks for posting. I will recommend this blog to all my friends.

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  7. I am Morshed: I saw this web site is absolutely good.

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  8. I like the whole idea of learning through 'trial and error'.
    I think this article was very useful to me, as I am currently in this field, and plan to go as far as possible. Thanks!

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  9. thanks for the information, your information is very interesting and useful. never stop writing please your article is very interesting.

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  10. Raising a capital from big company I guess is just raising a capital for a small business. This is a great article. Thank you much.

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  11. The most crucial aid to new ventures from the expert. I hope the series would be as good as other gifts from Yuval.

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  12. Yes i also believe that capital is one of the most vital components to start a venture. When you dont have capital, it becomes difficult to acquire resources and manpower to start the venture. Indeed a really helpful post!

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  13. Many of us would first consider big capital if ever we thought of building a business. I admire you of having two companies and earning so much from them. Thanks for sharing

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  14. Thank you for giving me this information.You are really right about it, that raising capital is a trial and error process. It is not taught in school. This blog would really help me in order to avoid problems near in the future. Thank you.

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  15. These are very helpful tips inorder to not be brought down by the mountain it is to start-up. My family is starting a business and look forward to reading part 2

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  16. Nice post, it's really interesting. I can't wait for the next part. :)

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  17. Good evening,
    This has been an extremely informative blog. I will for sure look into VC's once I get closer to opening my gallery. I will be book marking your page to refer back to these techniques. Word of mouth is always the best way to learn the most helpful things.

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  18. You have a great point, I'd never thought that I'll learn business this way. Great stuff and thanks a lot.

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