Getting Funded

You are at a holiday party and go to get yourself a drink from the bar, and there, right next to you waiting for a glass of wine is that one magical person that you have been dying to get an intro to for months. You realize that you only have until his drink is poured to hook him in, what do you do? Tackle bartender and spill all the wine, so you can have more than 30 seconds to talk? I hope not.

This is why it’s important to always be ready with that quick, short, to the point pitch of who you and your company are (and why you are awesome).

As passionate as entrepreneurs can get about their ideas and their business it is often surprising how hard the one-minute pitch is. I say this both as someone who has given plenty and heard plenty. I wear multiple hats as someone who helps entrepreneurs at The Capital Network, and someone who is marketing a new business at Textaurant. So I know from both sides of the coin why the one minute pitch is both difficult yet crucial.

It is always frustrating to have a very excited entrepreneur come and share their idea with me and after the first minute of our discussion I’m still completely confused as to what the product is or even how they will make money.

In the beginning when I started working with Textaurant I had a very hard time condensing what we did into a few sentences that both made it perfectly clear who we are and what we do, but also that didn’t make people get that glazed look of boredom in their eye. The passion and excitement that I felt about our company and product made it easy for me to go on and on for quite a while about why we are changing the way people wait and how everyone should use our technology, but that passion also made it hard to sum up in a few short sentences.

Our founder Josh would tell me over and over what he said and I would try to remember it perfectly I would always mess it up or stumble. The way that I finally got it down was when Josh handed me an iPad to demo at a networking event and pushed me into the crowd. “Don’t come back until you’ve spoken to everyone”

Two hours and who knows how many unsuspecting people later I finally had it! Every person I talked to would ask a different question after I explained who we were and I used that to fine tune my next pitch adjusting my pitch based on what I was realizing were the key aspects other people were picking up on, which might be slightly different than what I had originally thought.

Depending on who you are talking to, what your company is and how complicated it is, there will be different things to focus on, but if you are just sitting down to plan your first attempt at a one minute pitch there are three main points that can guide you through:

1. Who are you?

Introduce yourself. Don’t give a whole long life story, nobody needs to know that you were born in the rain on a Tuesday, but they do want to know your name at the very least.

2. What do you and your company do?

Yes, I know it’s obvious, but if you don’t get this out after the first few words you will lose everyone. You should be able to some up the big picture of what you and your company do in one clear sentence. The following sentences just expand on the overall picture of what you do.

3. Why are you different?

Why is your idea so important and different than any other option out there. This shouldn’t be a total break down of the competitor matrix you have on your desk, but should at least give the listener and idea of that “wow” factor behind your business that makes it so great.

Once you have the basic script figure out, throw it away. The last thing you want to do is memorize it word for word and sound canned. You will never say the same thing twice, and that is ok.

The most important thing to do is practice. Practice on someone who knows very little about what you do, especially if you have a highly technical or complicated product. Give your pitch, pay attention to what people ask you after. If people are asking you things that seemed like they should be obvious, that is usually a good indicator that the obvious, isn’t really that obvious.

The more you talk to people about what you do, the better you will get at explaining it. Never stop practicing.

Next Friday, December 16 The Capital Network is teaming up with MassInno and LaunchPad for an interactive Pitch Practice and competition event. You will get to work one on one with LaunchPad members to practice your pitch and hear feedback. The company with the best pitch will win a $100 gift card, just in time for holiday shopping! More Info

This was originally posted on April 19 by Micah Rosenbloom on his blog. View the original post here

Timing is everything – especially when it comes to raising a round of capital. My Founder Collective colleague Eric Paleyand I discuss (and debate) it often. Here are some observations having been an advisor to two recent TechStars companies and co-founder to three start-ups.

Be weary of the artificial timeline

Both Brontes and Novophage are classic university ventures. They started in labs, later received university and government funding (Deshpande Center, BU’s office of Tech Development).Both companies went on to win or place in the finals of highly regarded business plan competitions at Harvard, MIT, Duke, etc. It seemed opportune time to raise capital, but the businesses were still not ready. While business plan competitions are excellent catalysts for founding teams, and useful for gathering feedback, they do not ensure that a business is ready to launch (even so for winners/finalists).

Any process that sets an artificial timeline – expiration of government or university funding, graduating from school, a business plan competition or the conclusion of an incubator program does not inherently mean it is time to raise money. All businesses need to incubate at their own pace. Early market pivots, prototype development and building the founding team should generally happen on the founder’s nickel.

Fundraising = acceleration not inertia

All too often entrepreneurs approach fundraising as the start of the venture. This attitude often leads to disappointment. A business should be operating as a regular business – with the makings of a culture, meeting routine and infrastructure (Novophage had 6 gigs of in its Dropbox before fundraising)!

Capital is invested to accelerate a business that has initial momentum but has reached a point where only money can get the company to the next accretive, and risk-reducing, milestone. VCs use the terms “traction” flippantly but in essence what investors want to see is momentum before the fundraising. At Brontes, we needed a clear market focus (dentistry) and industry advocates before we were really ready for a Series A raise.

But strike while the iron is hot …

Having said all this, timing truly is everything. The investment community is momentum driven, just like the stock market. You’ve got to have a nose for when the timing’s right. A strong signal from a VC often suggests its time to talk to many and leverage the interest to terms sheets. If your segment is “hot,” find those pre-disposed investing actively in the segment you’re in.

In the end, the sequencing of fundraising often has a significant bearing on the outcome of the process.

Micah Rosenbloom is the Chairman and CEO of Novophage. If you want to hear more from Micah he will be a panelist during the Life Science Venture Fast Track on November 8, 2011. Early bird ends October 26 so so get your tickets now.

1. In life sciences, if it’s “viral,” it’s bad. (Web Consumer vs. Life Sciences) @kentbennett #TCNNE

2. Panel 1 is wrapping up. The relevant meat-and-potatoes of dealing with pitching to VCs and the process of raising a first round. #TCNNE

3. #TCNNE: Don’t cold call. If an entrepreneur hasn’t taken the time to contact a VC through their networks, they’re not a true entrepreneur.

4. #TCNNE: The only thing investors know is that you have the wrong answer. What they want to see is that you’ve thought it though.

5. #TCNNE Communication Math 9×1=0, 3×3=1. That is: 9 messages once each- nothing sticks. 3 messages 3 times each- 1 sticks.

6. The CEO of @BzzAgent has some salient thoughts on term sheets on the #TCNNE panel. Oh yeah, last week he made millions. http://tcrn.ch/ivkRkK

7. Interesting rule: In Massachusetts, companies that pay employees in ONLY equity are violating the minimum wage law. #TCNNE

8. Think of #VC as a big credit card w/ a 30% IR . . . u are going 2 be careful when u draw down $5M. @kentbennett killer soundbytes #TCNNE

9. Now @TCNupdate Chairman Jeremy Halpern leads a #TCNNE panel on how to craft the perfect pitch. Opening comment: ZOOM OUT! #legit

10. Thanks #TCNNE for a great Venture Fast Track event today. Great panelists and tons of valuable metrics and tools

If you are interested in attending a TCN event, click here to see more upcoming events.

By Marielle Segarra of CFO.com, reprinted with permission from this May 13th post.

A young company looking for outside funding won’t get very far without a well-crafted pitch. And pitching to investors doesn’t just mean showing them a raft of numbers; it also requires skillful storytelling. “The biggest challenge is distilling [the pitch] down to something that’s irresistibly compelling,” said Greg Erman, a serial entrepreneur who has founded six medical-technology companies, at a recent conference held by Boston-based The Capital Network, focusing on fundraising for life science startups.

A compelling pitch is especially important for seed-stage companies these days, given current trends in the venture capital market. Although first-time financings by venture firms in 2010 were up about 30% from 2009 — with more than $4 billion going to about 1,000 companies — the flow of funds going to seed-stage firms declined by 2%, according to the Moneytree Report by PricewaterhouseCoopers and the National Venture Capital Association.

Similarly, angel investors poured $20.1 billion into growing companies in 2010, an increase of 14% over 2009, but reduced seed-stage investments by 4%, according to the Center on Venture Research at the University of New Hampshire’s Whittemore School of Business.

Erman was one of several experts who talked about creating and delivering a successful pitch at The Capital Network’s Life Science Venture Fast Track. Here, distilled from their discussion, are five tips for talking to investors:

1. Don’t cold-call potential investors. Use your network instead to connect with angels or venture capitalists. “The first priority in approaching any investor is to have a credible referral,” Erman said. This person should know “enough about the entrepreneur and the business to be able to offer recommendations that are authentic.” If an investor allows electronic submissions, entrepreneurs should submit a plan and try to reach out through a referral.

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ROYALTY-BASED FINANCING GIVES START-UP COMPANIES A NON-DILUTIVE, ALBEIT EXPENSIVE, SOURCE OF FUNDS.

From this original article by Alix Stuart, Senior Writer at CFO.com. Alix covered TCN’s April 12th Breakfast Roundtable on Raising Capital While Maximizing Founders Equity.

Last year Velico Medical Systems, an aging Beverly, Massachusetts-based start-up with no products and no revenue, needed some money. The company had been “in perpetual funding mode,” CFO Tom Fitzgerald told a gathering last Tuesday hosted by The Capital Network, a Boston-area education and networking group for early-stage high growth startups. It had worked on products related to the handling and storage of human blood without any success. A new effort, which involved spray-drying human plasma, seemed promising, but prospects for a new source of equity capital were not as bright.

As it happens, Fitzgerald didn’t need the equity capital. Instead, he went back to a venture-capital firm that had previously turned down the small life-sciences company and emerged with a fresh infusion of cash through a nontraditional financing arrangement known as royalty-based financing.

In this arrangement, companies agree to pay a stream of income, or royalty, to the investor. The royalty can simply be a percentage of gross revenues or, as in Velico’s case, conventional royalty payments for intellectual property. Velico turned over the rights to royalties it received from a patent-licensing agreement it had with a large biosurgical-products company to the VC firm, OrbiMed Advisors. In exchange, Velico received a lump sum of money, free and clear of any future obligation. The deal closed last October, about eight months after the initial discussions about it.

Royalty-based financing is certainly not common, but it could be an increasingly available alternative for certain types of growing companies with steady cash flows, experts say. “I think we’re going to see more of [it],” says Dan Allred, Senior Relationship Manager with Silicon Valley Bank. “There are a lot of companies out there that may not be high-growth enough to get the attention of traditional equity investors, but still have good cash flow and good margins,” both of which would make them more attractive for alternative structures.

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By Dan Allred, Senior Relationship Manager at Silicon Valley Bank and Board member of The Capital Network

These are exciting times for the Boston start-up community. New entrepreneurs, new investors and new companies are everywhere, and experienced entrepreneurs and investors are lining up to mentor them. Nowhere is this dynamic more clear than in Kendall Square, and the Venture Café at the Cambridge Innovation Center is quickly becoming the nexus of much of that activity.

I’ll give you an example of what I’m talking about. I went to an event at the Venture Café one evening last week, and as I walked out of the elevator I immediately ran into one of my clients who is also a fellow BOD member at The Capital Network (TCN), a non-profit focused on addressing the “capital gap” for early-stage start-ups. As she and I caught up, a contract CFO who works with at least a dozen venture backed companies (including her company) approached us and joined in on our conversation. From there, I proceeded down the hallway and ran into ANOTHER client of mine, this time a semiconductor company. I chatted with that team for a few minutes and then FINALLY made it to the Venture Café event, which was attended by over 50 entrepreneurs, most of whom I had never met before. There were several VCs and angels in the crowd that evening as well.

Clearly, good things are happening at the Cambridge Innovation Center, and the Venture Café is quickly becoming the place to meet the next generation of entrepreneurs. With that in mind, I’m very excited to announce the launch of TCN UpStart Roundtables which will feature CEOs with many years of experience to help mentor brand new entrepreneurs. This initiative is a collaboration between TCN and the Venture Café, and we at Silicon Valley Bank are pleased to leverage our network to make sure that there are always experienced entrepreneurs and CEOs on hand to lead discussions about start-up war stories and the decision making process inside of a start-up as well as to provide insight on what keeps these entrepreneurs and CEOs up at night.

Our line-up for the first three sessions of the TCN UpStart Roundtable is as follows:

• Thursday March 31^st: Panos Panay – founder & CEO of Sonicbids
• Thursday April 28^th: Leslie Williams – serial life sciences entrepreneur and current CEO of ImmusanT.
• Thursday May 26^th: Doug Levin – founder of Black Duck Software and founder & CEO of Ayeah Games.
• Thursday June 23rd: Eric Giler - CEO of Witricity and former CEO of Brook Trout and Groove Mobile

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James Herriman, COO of SmartCells Inc., will speak at TCN’s upcoming Negotiation & Valuation Financing Roundtable on February 9th. SmartCells is a private company based in Beverly, MA that develops a glucose responsive insulin formulation for the treatment of diabetes mellitus. They have received funding from Boston-based angel groups including Boston Harbor Angels, Angel Healthcare Investors, Beacon Street Angels, and Common Angels.

In December 2010, SmartCells was acquired by Merck & Co., Inc.. Nancy Thornberry, Senior Vice President and Head of Merck Research Laboratories’s Diabetes and Obesity Franchise, said that “maintaining control of blood glucose levels represents a daily challenge for people living with diabetes. Through the acquisition of SmartCells we have obtained innovative technology that may enable us to develop glucose-responsive insulins.” Merck acquired all outstanding stock of SmartCells, Inc., and in return SmartCells shareholders received an upfront cash payment and will be eligible to receive clinical development and regulatory milestones for products resulting from the transaction for potential aggregate payments in excess of $500 million. Sales-based payments for products resulting from the transaction will also be payable. SmartCells’ board of directors unanimously approved the transaction. [Taken from the SmartCells website.]

Learn more about SmartCells’ successful financings and exit and enjoy the opportunity to test your valuation abilities and acumen in real time at TCN’s Evening Roundtable on February 9th. Seats are still available. For more information and to register, visit the TCN website.

The Capital Network (TCN) is Boston’s leading non-profit organization providing extensive educational programs and a community to help early-stage entrepreneurs master the entire funding process and successfully raise seed capital for financing their high-growth startup.

By Bonnie Fendrock, President and CEO of Hepregen Corporation, a Massachusetts-based company that is developing bioengineered solutions for drug development, including a platform for advanced toxicity screening and drug discovery. Read more about Hepregen.

In 2008, when our team was in the early stages of starting Hepregen Corporation, TCN’s programs offered a myriad of relevant topics faced by start-up companies. We had assembled a founding team with core technology to be licensed from MIT. As CEO, I attended programs and met individuals who furthered my understanding of the implications of different financing strategies. Since we had several different business models that could be pursued, it was important that we understand the upside as well as the downside of the financing options to support each model. At every event, I gained additional insight and perspective to issues relevant to early company formation. As we headed into the Series A fund raising process, I found that we had addressed and resolved many of the questions that arise during financing as a result of my participation in TCN’s programs.

Since closing the $5M round of Series A financing from Battelle Ventures in July 2008, we have grown to 12 full time employees based in Medford, MA. We are partnering with more than a dozen pharmaceutical companies to validate Hepregen’s technology platform, HepatoPac^TM , a highly predictive liver model to assess drug safety. We are working towards commercial agreements with several major pharmaceutical companies with the goal of reaching profitability by the end of 2012.

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TCN is proud to have contributed to Hepregen’s success in raising capital. Consider purchasing a TCN Season Pass to take advantage of TCN’s programs at a discounted rate.

Over 130 women (and a few men) attended last week’s second annual TCN Women’s Entrepreneurship Breakfast to discuss how to increase the success of entrepreneurial women in high growth startups.

Janet Kraus, Co-Founder and CEO of Spire and Entrepreneur-in-Residence at Harvard, proved to be an engaging and insightful moderator of the panel, which featured Diane Hessan, President and CEO of Communispace, and Rudina Seseri, Principal at Fairhaven Capital.

We know that women are launching high growth startups more than ever. Yet even in Boston, an entrepreneurial hot bed, companies lead by women don’t seem to aim as high or clear as many hurdles. TCN and Boston’s entrepreneurial community organized a breakfast event at Microsoft’s NERD Center on December 1^st to focus on the challenges around women’s entrepreneurship in Greater Boston.

So what does the landscape look like? We know that women are more efficient, have fewer failures, submit more patents, and are heavily involved in IPO’s. But is not all sunny: there still very few female investors, while women take on less capital than men. How many women are actually starting companies, and what are the successes they’ve celebrated and the challenges they’ve faced? What are the hurdles that women continue to face in starting high growth companies? Here are some statistics and questions to consider, taken from the opening presentation from the Women’s Breakfast.

1. There are currently 8 million U.S. businesses that are owned by a majority of women. If U.S.-based women-owned businesses were their own country, they would have the fifth largest GDP in the world, trailing closely behind Germany, and ahead of countries like France, the United Kingdom, and Italy.
2. It pays to be in Massachusetts! Nationally, women make up 8% of all company founders; in Massachusetts, women make up 27% of founders. Massachusetts has the highest rate of female founders in the country.
3. Between 1997 and 2004, the number of women-owned companies grew by 28.1%. That’s nearly three times the rate of all privately held businesses with employees.
4. The average venture-backed company run by women has 12% higher revenues than the average of those run by men but, on average, 33% less capital committed.
5. In 1988, 4% of the 134 firms that went public in the US had women in top management positions. In 2009, all but two of the 19 high-tech IPOs had at least one woman officer.
6. Women-led companies with more than $1 million in revenue are twice as likely as male-led companies to get debt capital rather than equity capital.
7. Only 8% of entrepreneurs backed by venture capital are women.
8. Angel groups are actively working to promote women entrepreneurs through the formation of groups focusing on women-led companies, such as Golden Seeds and Illuminate Ventures, and through the syndication of deals from these groups with other angels.
9. Women now represent just over 15% of angel investors, but only 5-7% of partner-level high-tech venture capitalists in the U.S. Firms with women investment partners are 70% more likely to lead an investment in a woman entrepreneur than those with only male partners.

Read more:

• CB Insights, tracking of 165 internet companies and their 300+ founders receiving Seed or Series A funding from VCs from Jan to June 2010
• The End of Men by Hanna Rosin in The Atlantic, July/Aug 2010
• “High Performance Entrepreneurs: Women in High Tech,” performed by a team led by founder and CEO Cindy Padnos of Illuminate Ventures
• “Where Are All the Women” Resource List by Mass Challenge

With these statistics behind us, why don’t women ask for external funding at the same rate as men? Is there still a difference between women and men when it comes to the entrepreneurial path?

There are many resources in New England to help women develop high growth companies:

• Astia
• Babson College’s Center for Women’s Leadership
• The Boston Club
• Boston Women in Finance, Inc.
• Center for Women & Enterprise
• The Commonwealth Institute
• Girls in Tech
• Golden Seeds
• Massachusetts Small Business Development Center Network
• MVVF Women’s Collaborative
• Simmons School of Management
• State Office of Minority and Women Business Assistance
• Springboard Enterprises
• Women Entrepreneurs in Science and Technology
• Women In Technology International
• WPI Venture Forum

The Capital Network provides education, resources, and a community for entrepreneurs seeking funding. We join the larger community in the challenge of answering these questions and building a sustainable ecosystem for womens entrepreneurship. Learn more about us at www.thecapitalnetwork.org.

On November 9th, over 50 entrepreneurs gathered at Nutter McClennen & Fish LLP for a full day of panels, discussions, networking, and mentoring with some of the best known entrepreneurs, investors, and service providers in Boston. The TCN Venture Fast Track is a bi-annual event designed to provide entrepreneurs and investors an in-depth understanding of what it takes to raise early stage capital for a start-up. The Fast Track is a full-day version of TCN’s comprehensive Roundtables and Expert Lunches.

Check out what the participants thought of the event! (Most soundbites taken from Twitter)

• Venture Fast Track 1 day boot camp. Impressive intro, great energy.
• Good time speaking at the TCN bootcamp. Boston entrepreneurs never cease to impress me.
• I’m impressed with the depth & quality of the information on VC deals, valuations & equity today
• Killer lunch-mentor session at The Capital Network Fast Track session. Networking anyone?
• Skip the MBA, just go to a TCN venture Fast track boot camp, save $80k.
• Speakers at TCN Venture Bootcamp proving that the analogy between dating and investment never grows old!
• Beth Marcus is dropping some very practical advice at tcn venture fast track, thanks!
• Good to see several MassInno companies here today at Venture Fast Track - good content for startup founders
• Fast track event by TCN was the most educational event I’ve been 2 so far in the startup scene here in Boston. Thx MassInno & TCN!!
• Thx MassInno & TCN for the awesome educational and networking experience today. Looking fwd to more!
• My favorite part was definitely the lunch session. Being able to have 2-3 mentors at our table that we could pitch to was invaluable. They gave me great feedback and asked me some thought-provoking questions. I also enjoyed meeting all the other entrepreneurs and hearing about their ideas. There was great energy in the room.

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Want to experience the quality TCN programming? Check out our upcoming events.

Lastly, a big thank you to Nutter McClennen & Fish LLP for their generous sponsorship of the TCN Venture Fast Track, and to our wonderful speakers and mentors.