Situation: A CEO has been the principal source of financing for her company. She is looking for Round #1 financing of $800K to $1 million to take the company through the next two years, followed by an additional two rounds of financing to take the company to profitability. What are the best options to obtain financing?
Advice from the CEOs:
- Given the company’s size, it’s too risky to put all eggs in one basket. Also, it is difficult to simultaneously pursue all options. List and rank all financing options, and limit efforts to the top 3-5 options, forgetting the rest for now. The company is more likely to be successful with a limited number of targets.
- The big question is which avenues to pursue? Current preferences are:
- Sell what the company can sell now – focus on collaborators and bootstrap the company as much as possible.
- Angel funding, if the company can find the right angel.
- Avoid venture capital unless there are no other options.
- Given these, where does the company have live contacts? What conversations can be pursued to a successful conclusion in the next 1-2 months?
- For the Angel option, the company’s model is easy to explain and has appeal. Which potential Angels could be approached in the next 1-2 months?
- An option is to bring an Angel in slowly – creative input, perhaps a Board seat.
- Once the Angel is on-board, put together a list of your funding priorities and a list of 4-5 top prospects in a Board discussion. Ask this individual’s advice and assistance contacting some of the prospects. He may ask at that meeting or later why he hasn’t been asked.
- For the first $1million – consider an SBA loan.
- Under new guidelines, the application fee has been reduced.
- Approval cycle – 30 days or less.
- The trade-off between bootstrap and Angel funding and SBA is personal risk. Look at this as a fallback option.
- VC funding is very time consuming. Also, VCs prefer that their clients are somewhat desperate, so that they will receive a larger piece of the company for their money.