Successful Startup 101 Magazine - Veteran's Issue 2014 Page 3
How do Startup General Counsel’s Interact with the CEO? Being perceived as the “no guy” ranks among a startup general counsel’s top fears. “You don’t want to be the guy at the end of the hall that just says ‘no,’ because eventually people don’t incorporate you into the conversation.” Another explains, “if you want the CEO to trust you, you need a track record of not always saying no.” Some general counsels have even eliminated “no” from their vocabulary. “It’s not the GC’s place to say no. It’s the GC’s place to expound on the risk and if there is something that is super risky, make that clear, but leave the call to the CEO.” A problem-solving stance and a deep understanding of the company’s product help GCs avoid unnecessary nos.
More than avoiding trouble, some GCs see their understanding of public rules and perceptions as an opportunity to lead. One GC explained that he filters his own legal advice through the lens of the customer: “If you’re reading [the customer] correctly,” and you have an internal reputation for doing so, your legal advice, whether restrictive or progressive, “will be an easy sell.”
This article was developed through a series of interviews generously granted by the following general counsels: Sarah Reed, Charles River Ventures; Brian Chase, Foursquare; David Pashman, Meetup; John Geschke, Zendesk; Sarah Feingold, Etsy; Doug Hicks, AVOS Systems; Jared Cohen, Kickstarter.
About the Author
Daniel Doktori works in the emerging companies practice at WilmerHale in New York City and is the co-founder of the Harvard Law Entrepreneurship Project. Follow him on Twitter @ddoktori.
Pros and Cons of Joining a Business Accelerator Program
By Jerry Jao
Joining a business accelerator program isn’t the right choice for every entrepreneur, and it doesn’t guarantee success. For a selected few, however, it provides a much-needed jumpstart towards a more promising future. My third company, Retention Science, is a graduate of MuckerLab, a mentorship-focused accelerator based in Santa Monica, California. Here are my thoughts on the pros and cons of accelerator programs.
Pros
1. Curriculum and Clear Structure. Business accelerator programs typically consist of three to six months of crash courses, speaker series, and professional workshops designed to help you learn a lot in a very short period of time. Certain accelerators conclude their programs with a Demo Day, where entrepreneurs publicly debut their products to a group of peers, tech reporters, and investors. By establishing a clear schedule of classes and milestones, the program helps entrepreneurs stay focused and reinforces the need to be agile and move fast.
2. Marketing and PR. You can count on your accelerator to be one of your biggest advocates to the outside world. The accelerator helps develop your marketing strategy and identify the right positioning for your products. And, when it is time, it helps you identify the proper outlets to publicly launch your company. If you’re part of a well-respected accelerator, chances are tech reporters, potential customers, and even investors will be more interested in your company news. This is why the reputation of your accelerator matters.
3. Funding. Accelerators typically provide $20,000-$50,000 in startup capital to each company. Different accelerators have differing policies and funds. While funding is important, I’ve heard many entrepreneurs share this repeatedly: do not choose one accelerator over the other because it offers you $35,000 versus $25,000. Your decision should be solely based on the quality of the partners, network of mentors, and curriculum – in the grand scheme of things, a few thousand dollars will not save your company, but knowing the right contacts will.
4. The Perks: Discounts, Freebies, Social Events. Each accelerator offers different perks, but examples may include free legal advice, financial planning support, access to design agencies, discounted package for web servers, social events, and many more.
Cons
1. Company Equity. On average, accelerators require between 5–10% of company equity in exchange for all of their great benefits. This is a lot of company equity – do your research so you know for a fact that you will gain a lot of value by joining the accelerator.
On a side note, I’ve heard of unique cases where accelerators take less equity than normal. For example, if a company is already far along in development (i.e., significant number of customers or users), certain accelerators might negotiate with you. It’s worth a shot.
2. Unsuitable Network for Your Business. Not all accelerators are created equal. Some might not have the right network to add value to your business. For example, an accelerator may have considerable experience in building e-commerce businesses, but know little about scaling mobile apps. Quality accelerators should not offer you a spot if they know they cannot make a meaningful impact on growing your business. But, don’t just count on them to make the call. Do your research.
3. Less Support Once You Graduate. While accelerators are great for launching your company, you shouldn’t expect the same level of support after you graduate from the program. It’s imperative to maximize all of the resources during the official program, because once you’re no longer working out of the shared office space, fewer opportunities will exist.
4. Commitment & Risks. Joining an accelerator is a serious commitment, and it does not guarantee success. For some entrepreneurs, it sometimes means leaving family behind for a couple of months, relocating to a different city, or taking out more loans to support themselves. While the goal is to accelerate your company growth, there are still many companies that drop out of the program or fail to complete building a product that meets market demand. Keep in mind that accelerators can help you a great deal, but they do not mitigate your risks of failing.
The right business accelerator program can open many doors for you, but as I was once told, we still have to “walk into those doors.” Whether or not you decide to join an accelerator, keep in mind that, at the end of the day, it’s still up to you to develop your idea, prioritize your long list of must-dos, and execute.
About the Author
Jerry is the co-founder and CEO of Retention Science, a leader and innovator in retention marketing. Previously, Jerry was an analyst with Morgan Stanley, an engagement manager with BearingPoint Management Consulting (KPMG Advisory) and, most recently, an advisor to the CFO of Clear Channel, working on digital initiatives such as iHeartRadio. Jerry is a graduate of UC Berkeley, where he earned a bachelor’s degree in business administration and a full-tuition scholarship as an Alumni Scholar; he also attended Yale School of Management.
8 Ways to Fund Your Veteran-Owned Startup
By Tom Cox
Founder, Soldier to Startup
Believe it or not, the military does an excellent job in preparing veterans to start and run their own businesses. As veterans, we learn a lot of skills that are very important to being a successful entrepreneur:
Leadership
Teamwork
Discipline
Perseverance
Dedication
Preparation
Adaptability
In fact, in many cases, entrepreneurs have limited success or outright fail because they lack these skills.
But the military doesn’t teach us a lot about how business works. Most soldiers and veterans know very little about basic business fundamentals such as:
Business Finance
Accounting
Legal
Taxes
Contracts
Sales
Administration
Equity/Debt Funding
The good news is you can learn business. It’s harder to be a business expert and have to learn leadership than the other way around.
When I talk with veterans about their business ideas, the same questions tend to come up over and over – which is good for two reasons: these veterans are thinking about the right questions, and I can help answer them.
But the number one question I get in almost every conversation is this:
How Do I Fund My Startup?
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br /> This was the number one question on my mind when I wanted to start my own company too. I knew I had a great business idea and wasn’t afraid of putting in lots of hard work. I just didn’t know how to get the money I needed to get going while still paying my mortgage and buying groceries.
Luckily, we live in a time when it is easier than ever to not only start a business but also to finance one. Better yet, we also live in a time when you can learn what you need to know when you need to know it, and we can find people who can help us more easily than ever.
Even better, as a veteran you have access to some resources and privileges that civilian entrepreneurs don’t.
Here are eight ways you can fund your startup idea. Ultimately your business model, experience, and a number of other factors will help you determine which combination of these are best for you. But this list should help you get thinking about how to take the next step.
**NOTE** The best source of funding is REVENUE. Keep your costs low and maximize your revenue so you can use your profits to finance your business growth.
#1: Business Credit Cards
7% of all small business financing comes from either personal or business credit cards. You can use your personal cards to finance your business early on, but ultimately you really want to use business credit.
Business credit is different than personal credit. You can have terrible personal credit, but if your business always pays its bills on time, you can begin to establish great business credit.
In order to establish a separate line of credit for your business and avoid personal liability for your business credit cards, you need to form a corporation (I recommend forming an LLC in your home state), register your business with credit bureaus (such as Duns & Bradstreet), and apply for the right types of business cards. Note that some banks market personal credit cards as “business cards” so be sure to look carefully at the terms to make sure you are not personally liable for the credit debt.
#2: Friends and Family Funding
Borrowing money from your friends and family is the second easiest funding source because it’s easier to establish credibility with people who know you well and they’d be more likely to help you out instead of a stranger asking for money.
You can raise friends and family money in two ways: debt or equity. Debt simply means you are borrowing money in the form of a loan, whereas equity means you’re selling a percentage of ownership in your company to them.
If you are borrowing money in the form of a loan – even if it’s from your parents – make sure to document the terms of the loan in the form of a promissory note. This document basically describes the terms of the loan, such as the amount borrowed, when and how it will be paid back, any interest due, etc. As your company grows and you pay back this loan, this will go a long way to proving to banks that you are credit-worthy for borrowing from institutions as well.
If you are selling a percentage of your company to a friend or family member, you need to incorporate your company (again, an LLC in your home state is best for now) and in 95% of cases you will want to hire a lawyer to set up all of the necessary documents. Make sure that you and your new part-owner both agree on the value of the company, the use of the money, and their percentage of ownership. Also make it clear (in writing) what voting rights and ability to direct the company both you and any other owners have.
#3: Business Loans
Banks, credit unions, and franchisors all lend money to small business and sometimes even to startup companies. Usually loans are secured by collateral – meaning the things you buy with the loan can be repossessed and resold by the bank in the case you default on the loan.
Most business loans come in the form of a Line of Credit, which can fluctuate in maximum borrowing amount based on some metrics of your company’s financial performance, like debt-to-equity, average accounts receivable, etc.
When looking for business loans, stick to conventional institutions such as banks and credit unions. Just like with personal pay-day loans, there are some sketchy companies online that lend you money with awful terms. So be careful with whom you do business.
You’ll need to be really buttoned down on your business plan, financial statements, and other legal documentation when you approach a bank. Banks assess risk in a number of ways including your personal credit history. It may be difficult to get a business loan for a startup company – especially if you won’t have a lot of physical collateral (like furniture and equipment).
The Small Business Administration (SBA) recently extended their Veterans Advantage program that waives the 3% SBA fee for loans made by lenders to veteran-owned small businesses. Veterans can borrow up to $350,000 without having to pay the SBA fee, which can save them up to $10,500 in fees.
Other SBA loan programs useful to veterans include the SBA Microloan Program and the SBA Express Loan Program.
#4: Equity Financing
If you’re starting a company that requires a significant amount of investment but can’t get the financing you need from credit, friends & family, or banks, you may want to consider raising equity funding.
When you raise equity financing you are selling shares of your company for a certain amount per share. For example, if your company is valued at $1,000,000 and you need to rise $100,000, you could sell 100,000 shares each valued at $1.00. If you sell 100,000 shares, you would have sold 10% of the ownership if your company.
You need a lawyer to help you do this. Trust me. There are a number of documents that have to be created and the angel investors may want to work with you and your lawyer to alter some of the terms and conditions of the equity sale.
The key to a successful equity raise is to know the value of your company. Investors will want to invest in something that provides a significant return, and entrepreneurs want to retain as much of their ownership as possible. Just remember this: pigs get fed and hogs get slaughtered. Work with your potential investors and your advisors/mentors to come up with a reasonable valuation.
I could write for hours about this topic. You can read more about my thoughts on raising equity at my website.
#5: Business Incubators
While only 44% of all businesses remain in business after 4 years, 87% of businesses that go through incubator programs are still in business after 10 years. That’s a pretty effective improvement in business reliability.
Incubators are like boot camp for business. These are programs that usually last from 2-6 months and provide a small company everything they need to get started. Legal, financial, marketing, employment, administration, and other forms of support are provided to the entrepreneur.
Most incubator programs provide a modest cash injection (anywhere from $5K to $250K on average) which is used by the founder to implement some of the things they learn in the incubator or pay for limited operational costs.
Incubators can be found all over the country – there’s hundreds of programs out there. Two that I really like are Capital Innovators in St. Louis and the Veteran Incubator Program (VIP) in Dallas.
Capital Innovators provides $50K in funding and $50K in services to winners of a semi-annual competition to get into the program. Only 6 companies are accepted each 6-month period.
The VIP program provides all sorts of educational training for vetting ideas, concept development, financial forecasting, etc. along with various levels of cash (depending on the business needs).
#6: Fundraising
A former employee of mine had a great idea for a new mobile app product, but needed some sort of funding to at least get started. He created a Kickstarter campaign (check out his campaign here) and raised more that $100K in the span of a few weeks.
Fundraising sites like Kickstarter, Indiegogo, and others allow small businesses to raise cash through pre-sales of products or selling special incentives like naming rights to a product or giveaways like T-Shirts.
A whole slew
of other fundraising sites have sprung to life recently because of some recent changes to the laws that govern who can invest in a company. Normally to invest in a company you have to have a personal net worth of more than $1M and be registered as an investor. Now more people can invest in companies (the laws are still hazy so tread with caution here) through these fundraising sites.
I recommend taking a look at some of the more successful fundraising campaigns like this one to see what works and what doesn’t.
#7: Joint Venture Partnerships
Several years ago when I ran my first startup company, we were building a highly complex hardware/software device to sell to the military. We scraped together the first $750K through an equity raise, revenues from service sales, and a bank loan. This got us to our Minimum Viable Product (our prototype) but we needed several million dollars to go to production.
We were able to sign a Joint Venture Partnership (JVP) with a large defense contractor who provided more than $3M in capital to cover the costs of engineering, manufacturing, production, and distribution of the product.
In doing so we gave up naming rights and they put their logo on the box, but we couldn’t have built it without this partnership.