a canadian startup

vc meet

yesterday, i went to the office of one of canada’s few established vc’s for advice. here’s some of the advice i was given, and some of my comments:

when finding funding, let your investor know that you’ve got options.

lightly suggesting to your investor that you are speaking to other people can be a strategy towards increasing valuation and demand. venturehacks seemed to suggest a similar strategy when they said:

Don’t use the word “auction” with your investors but you need to run an auction.

in a recent office hours.

but you’ve got to be careful using such a strategy — rick segal seems to imply that dealing with vc’s one by one is a better technique. sure, this may just be a vc suggesting how he would like things to go, but in this case i agree. i feel that working with a vc or angel investor is more like a partnership than a sale. and if finding a vc is like a partnership, then it should be more like dating than an auction — you work with one, put your heart into it, and find out if it is right for you before you move to another. part of the reason for not wanting to work with many vc’s at once is:

1. the vc’s will not feel as close of an attachment to you if you are meeting with many. you are shopping.
2. the vc’s will wonder why the other companies aren’t settling a deal with you–what’s wrong with you that they don’t see?

the biggest disadvantages to dealing with investors one-by-one, from my experience, are:

1. it becomes really hard to plan cash-flow because you can’t predict when the investment is coming in
2. the investor has more power to set valuation and terms because they don’t feel the threat of competition
3. and worst, there is no rush on the investor’s side to make the process move quickly.
4. the worst thing is the time it takes. the whole process of finding investors one-by-one and pitching your business takes up a lot of time, sometimes lasting months. so it would be nice if you could just pitch to everyone in one month and get it over with.

my best suggestion is to deal with vc’s and angels one-by-one but to know your options. at least that’s how i work. my other advice is to never, never openly state that you are shopping or that “other investors are interested” — i just don’t feel this is professional.

no one can help you with valuation

one of the neat pieces of advice this vc gave me was to not think too much about valuation. yes, we’ve heard it before, the other things besides valuation end up being much more important. but in this case what they were saying was that you should, instead of pre-money and post-money numbers, think about how much percent you are willing to give up and how much you could make without any external funding.

valuation, despite what any vc will tell you, is not a science and can be anywhere.

new, inexperienced vc’s can sometimes be great

the good thing about inexperienced vc’s is that they really want to make their first deals succeed because their name depends on it. this could be a good thing… (hopefully their term sheets are nicer too!)