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find benefit in its products or a new version of them. Says Abele, “Maybe re-aim your platform to a client category that is more likely to want that technology now.”
Or maybe you have a product aimed at the medical world, where the government approval process takes a long time. You might seek to adapt the product for an industrial application that wouldn’t offer the same long-term potential revenue but would give you some revenue earlier. Then, leverage that opportunity by working with that industrial customer to refine your product, if possible. That way, you make some money in the downturn that you wouldn’t normally have made, while also iterating your product to enable you to make more money when the climate improves for your core application.
It might be a good time to go back to deals that fell through before.
Intellectual property is one example Abele put forth. You might have identified a really good patent, say, but attempts to buy it or license it didn’t go anywhere because the parties had widely different ideas about what it was worth. “This is a good time for going back and talking to people,” he says. “They may be thinking differently now.”
Michael Greeley, general partner, Flybridge Capital Partners; chairman, New England Venture Capital Association:
“Recalibrate the amount of capital you need.”
If, for instance, you feel you need $10 million in financing, you set out to raise $4 million initially, and then work with investors to set up milestones needed to secure additional investments. That way, investors mitigate their risk by giving them the opportunity to “turn another card” in a year or so if things go well. And while for entrepreneurs “it does admittedly introduce some element of fundraising risk” by forcing them to raise new money sooner than they might like, Greeley says that can be mitigated by structuring additional financing terms more carefully. “You have to be more creative in how you tranche the investment,” he says.
Cultivate potential investors more carefully and over longer time periods.
Rather than speaking with 15, 20, or 30 potential investors in parallel, concentrate on the best five. Target specific partners and let them know six months or so ahead of when you will be raising another round. Seek a short meeting to fill them in on what you are doing, and ask them how they can add value—pre-qualify them while also pre-qualifying yourself. Come back for another short meeting three months later, learn more about their concerns and insights, and then return three months after that with a well-crafted proposal. “Engage them,” Greeley says. “Try and create a product [ie business plan] that they want to buy, rather than a product that you think can sell broadly.”
Consider upgrading your team.
A lot more talented people are out of work than usual these days. “This is a good time to press pause, evaluate talent, and selectively upgrade,” Greeley says. He has a portfolio company that was able to significantly improve much of its engineering team with no change in cost. “It was remarkable,” he says.
John Landry, software innovator, entrepreneur, and founder and managing director, Lead Dog Ventures:
“Take as little money as you can and get ideas of large exits out of your head.”
Valuations are being pushed down, both for startups raising funds and for companies being acquired. Accept it—and adapt, Landry says. “At the end of the day, companies are not going to be acquired for the price that they used to be acquired for. And so you have to build a business that is based … Next Page »
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