A SEED STAGE STARTUPS’ BEST CASE SCENARIO FOR VC FUNDING

The following is a general listing of some of the things VCs look for in Startups.

Many Founders [At Least One Inventor, One Evangelist, One Inquisitor]-historically teams of two or more highly competent alpha geeks, with a vast array of interests, curiosities, and competencies, have proven to increase the probabilities of success for Startups; your team doesn’t have to have the answers, but they must ask the right questions

Self-Financed Proof Of Concept [POC]-Startups with a working prototype have the greatest leverage in negotiating financing and attracting talented staffers

Use Widely Available, Reliable Open Source Tech-Startups maintain strategic advantages since they do not rely solely on a particular supplier for products or services

Use Progressive Programming Languages That Fosters Innovation-Using popular and dynamic emerging languages including Python, gives Startups the best opportunity to attract young, talented programmers

Value Proposition Hinges On A Solution Not A Product-Products rarely outlive trends, but Solutions to critical dilemmas that Users face everyday will always endure

Solution Is Affordable [Free, Almost Free]-some form of free giveaway creates a relationship with Users that may lead to greater adoption of fee-based upgrades, and ancillary products and services

Product Development And Pricing Strategy Targets Multiple Users [Enterprise, Small Business, Pro Users, Students, Novices]-Meet Users at a reasonable, mutually agreeable price point; charge Users differently according to their ability to pay

Open Beta Test Nets Approx. 150,000 Users Within Six Months-At seed stage you need tens of thousands or hundreds of thousands of Users to demonstrate the practicality of your value proposition

User Growth Rate At Least 15% Per Month-Startups need the momentum of exponentially increasing Users per annum to sustain the innovation, sales, and market penetration needed for long-term viability

Most Users Are Affluent-Essentially, most Users can afford the low fee subscription and licensing pricing models that are commonplace today, however, if you’re interested in selling multiple products that are responses to unproven, emerging technologies then the discretionary income of your Users can determine your success

Debt Free With Positive Cash Flow-Free cash flow and profits gives you the greatest degree of accessibility to VC funding at the best terms

Copyrights, Trademarks, Patents, IP Owned By Company-Any company that fails to secure the ownership of all work product created by founders, employees, and contractors will fail to be taken seriously

No Salary Expense-Very few Startups can successfully bear the burden of salaries; restricted equity adequately diversifies the risks and rewards of a volatile Startup venture

Everyone Paid With Restricted Equity [Vestment, Performance Clauses]-restricted equity is the only currency that should be used by a early stage Startup to reward founders and employees for sustained, quality performance

Friendly, Industry Renowned Angel Investors, If Any-Angel investors should be facilitators of company growth, they should never coerce founders to accept a specific financing deal or strategy; intrusive, meddlesome Angels may interfere with your ability to patiently secure VC funding at preferential terms

Hobnob With Numerous VCs When You Do Not Need Or Are Uninterested In Funding-The best deal often emerges when you’re not desperate

Shy Away From VCs When You Need Funding The Most [If VCs have serious interests, then use a third party to seal the deal and focus on bootstrapping your way to long-term profitability.]-Do not succumb to pressure and sign an unusually burdensome deal with a VC or Angel when you are experiencing difficulties growing your company

Flesh Out A Market Driven Growth Strategy, 12-18 Month Budget Forecast, And Attached List Of Milestones That All Founders, Angels, And VCs Can Agree On Then Make These Docs Part Of The Deal-Come to a meeting of the minds in regard to the post money strategic direction of your Startup prior to signing a deal

Negotiate With Only One or Two VCs At A Time-VCs are fraternal; it is highly improbable that any Startup will be able to generate enough interest to cause a bidding war among prominent, well-endowed VC firms

Comments

[Aaron]

Great post, except I disagree with the assertion "Open Beta Test Nets Approx. 150,000 Users Within Six Months". This is only a valid assumption when you are developing a consumer market product. Something focused on business/enterprise with a significantly higher cost would never generate this number of beta users.

Just my 2 cents.