July 20, 2010

Fizzlosophy: What are 3 points of advice for first time entrepreneurs raising venture capital

This week's topic on Fizzlosophy is:  What are 3 points of advice for first time entrepreneurs raising venture capital?

Today's guest contributor is Brian Balfour.  Brian is a Co-Founder of Viximo, a social gaming platform company based in Cambridge.  Viximo is funded by Sigma Partners and North Bridge Venture Partners.

Brian's response:

Know Why You Are Raising
Its great to have grand dreams of being the next GroupOn, Zynga, or , but keep those dreams in check while raising your first capital.  First time entrepreneurs are commonly unrealistic about three things.  One, the fact that your idea is a good fit for Angel/VC money in the first place.  Two, the amount of funding you need and the valuation you are asking for. And three, the milestones you can achieve with that funding.  Overshooting these three things raise a huge red flag with investors as it shows you aren't able to properly think through the business.

Its The Process As Much As The Pitch
Successfully raising funding comes down to how you execute the process as much as the quality of your pitch and idea.  Create urgency and build momentum by properly preparing diligence and executing as many initial pitches in the shortest frame of time you can.  Once you do your first pitch, your chances that you get a term sheet become less likely each day that passes.   Don't lie about commitments or shop term sheets, but there is a proper way to get investors to compete.  Competition among investors is where you will find leverage.

Do Your Diligence
Many first time entrepreneurs get so enamored once they get a funding offer, they breeze by their diligence on the investor.  Entrepreneurs should do as much due diligence on the investor, as the investor does on the company.  Talk to founders (not hired CEO's or other execs) of recent successful and not successful portfolio companies.  Additionally, do whatever it takes to get back door references for a true perspective.  Money from a really bad investor is worse then no money at all.

Bonus:  Never wait for the money to get started (on anything).  While difficult, you must keep the company moving forward while you fund raise if you want to close capital.

Brian Balfour is a Co-Founder and Vice President of Business Development & Marketing at Viximo, a venture backed social gaming platform.  Throughout his startups, Brian has raised both angel funding and millions in venture capital.  You can follow Brian on Twitter @bbalfour or at his blog SocialDegree.