The FAQS below cover fundamental answers to basic questions about starting, financing, and growing a high impact scalable business:
- Is your good idea a good idea for a fundable scalable business?
- Where and how do you start?
- What are your financing options?
- How do you value your business, and how do you keep as much of it as you can?
- What do investors look for when deciding to invest in a scalable business?
- What is your “secret sauce” and how do you protect it?
The answers to these questions and more will give you a good idea as to whether it is time to dig deeper, time to revise your idea, or perhaps even find another idea.
Venture Best Client Profile: The Emerging Scalable Business
There are many reasons for starting a new business. For most Venture Best clients, changing the world – or at least a chunk of it – is pretty high on the list. Entrepreneurs who work with Venture Best believe they can successfully compete for customers, capital, technology, and talent across the nation and often around the world. They risk a lot in terms of their own careers and financial security, and usually in terms of capital invested by others, with every intention of creating more than enough wealth to generously reward themselves, their employees, and their investors – wealth generated from delivering game-changing value to their customers. Venture Best clients are among the thoroughbreds of the entrepreneurial world; the folks who live and breathe their dreams of changing the world, usually more than once. They don’t always win, but they never leave anything out on the track.
Organizing your Business
A common entrepreneurial mistake is going from having an idea to pitching for money without checking off some critical preliminary legal matters. These issues can include: what form should the business take – Corporation? LLC? Partnership? And in what jurisdiction (state) should it be organized – quite often someplace other than the physical location of the business. Does the business own or otherwise have access to everything (for example, any important intellectual property, including software code) that it needs to succeed? Is the business structured in a way that will enable it to incentivize key future hires with sweat equity? Don’t start selling your vision to investors before you sit down with a good lawyer and make sure you are ready for those conversations. See the “Organizing Your Business” FAQS below.
Credit cards. Home equity loans. Friends and family. Maybe the retired rich couple in the next town over. Many entrepreneurs get their initial funding from “the usual suspects.” Sometimes early customers will provide some financing, and now and again an entrepreneur scales a start-up the old-fashioned way: bootstrapping. These are all attractive options. But figuring out when and how to use these options, and how to structure them, is something worth thinking about first, because doing the wrong things with the wrong people in the wrong way can create problems later on-problems that can, and sometimes do, sink otherwise promising start-ups.
After tapping "the usual suspects" for some initial capital, most high impact start-ups and other pre-revenue businesses, and even later stage businesses that are still focused on investing in growth more than reaping current returns, typically rely on equity financing provided by venture capital and other risk capital investors. How are these investments staged to manage dilution and risk? How do the terms of these investments change as a business matures? When can, and should, a business seek debt financing? What happens if there are unexpected challenges as the business evolves and grows? How can grants and other non-dilutive financing leverage risk capital? At what potential costs? What is the relationship between ownership and control? See “Financing Your Business” FAQS below.
Valuing (and Managing) your Business
It’s time to raise serious money from serious investors. So what’s your start-up worth? Put a little differently, how much of your start-up are you going to have to sell to get the money you need? And, come to think of it, just how much money do you need? Not to get all the way home, but to get someplace where the next round of investors will pay a higher price for their slice of your equity?
Valuing an early stage high impact business is more art than science. Depending on whether you are a first-timer or successful serial entrepreneur; the market you are targeting (scale, growth, competition, etc.); your “secret sauce” (unfair competitive advantage, e.g. intellectual property); and where you are located (how big and fragmented is the regional pool of available start-up capital), raising money fast at a good price can be variously problematic. How are you going to differentiate yourself, on one or more of these “big four” valuation factors, from your competition? And, by the way, what might your investors be looking for beyond the “list price” of the deal? How much control of management? How much in terms of preferential access to dividends, and exit proceeds (the latter somewhat disingenuously tucked away in the deal’s “liquidation preferences” section)? It may be all about the valuation, but there is a lot more to valuation than numbers. See “What’s My Start-up Worth” FAQS below.
What About Intellectual Property?
Most scalable start-ups have some sort of “secret sauce” they believe gives them a sustainable competitive advantage which will be an important part of their success. Sometimes that advantage is a patent (often more than one). Maybe it’s one or more trade secrets or copyrights. Over time, these intellectual property assets will almost always include trademarks, which are a critical foundation for any branding strategy. What are these assets and how do you acquire and protect them? Just as importantly, but often overlooked, how do you determine whether a given IP asset is worth investing in, and can be best used to add value to your business? Even low-tech and non-tech businesses generate and use IP to maximize their success. See “Intellectual Property” FAQs below.
These FAQs deal with issues that come up very early on, which is to say they should come up before you take any capital from any third parties; before you start paying folks to develop your ideas, technologies, software, etc.; and before you start marketing or selling your product/service, or disclosing any of your “secret sauce” to anyone not under a written confidentiality agreement.
These FAQs deal with many, but certainly not all, questions that come up about financing emerging high impact businesses, with a particular emphasis on start-up and early stage financing.
These topics deal with the intellectual property issues that every entrepreneur needs to think about to ensure their hard work, technology, brand, ideas, and products are protected. This FAQ goes over the basics of intellectual property, including patents, trade secrets, trademarks, confidentiality and non-compete agreements, inventions and the question of “who” invented them and who owns them, and how to pitch to investors without giving away your secrets.
These FAQs address the “people” topics that should be addressed early on in order to avoid challenging issues down the road, such as ownership and confidentiality of intellectual property, clarification of roles and responsibilities, employment statuses, and the important documentation necessary to ensure everyone is on the same page.
This FAQ topic deals with one of the most important considerations that comes with operating – and financing – your early stage company: valuing it. This section covers essential pieces of information such as valuation methods, understanding how to pitch in your current market, and what not to do.