Launching a startup is no easy task, but it can be an exhilarating and rewarding experience. Nevertheless, it takes several qualities as well as some valuable insight before any startup can hope to become successful. Nine times out of ten, up and coming entrepreneurs need to go for some venture capital to make their dream a reality.
For those of us who don’t know, venture capital is financing provided by investors to startup companies or small businesses that present long-term growth potential. The money can come from investment banks, various financial institutions, or it could come from well-off investors who have an eye for this sort of thing. Venture capital isn’t always money, either. It can also present itself as technical and managerial expertise.
Nevertheless, for emerging companies (ventures) that are in operation for less than two years, venture capital is becoming an increasingly popular source of raising money, especially when they can’t access it through capital markets, bank loans, or other such debt instruments. Of course, it doesn’t mean that venture capital is a sort of piggy bank where startup founders, good or bad, can come and get some free cash.
To be eligible for venture capital, however, you will need to prove that your startup can, indeed, be profitable over time. FirstCut has interviewed Tim Guleri, a venture capitalist, serial entrepreneur, and managing director of Sierra Ventures in San Mateo, California, to provide some valuable insight on how to become a promising startup in the eyes of a venture capitalist.
Here are some of the takeaways:
How to Look at Venture Capital
In Tim Guleri’s words, “Venture capital is really the capital you want to attract to your business when you’re sure it’s the business you want to scale over time. So, venture capital is not this quick fix. It brings certain expectations because you’re really getting an entrepreneurial-oriented investor involved in your company.”
In other words, when you’re going for venture capital, you need to be true to yourself to know wholeheartedly that this is the business you want to nurture and grow over the long haul. Likewise, it will not be only capital that you’ll be getting but also expertise, which is what you should be looking for, in the first place.
What It’s Truly like to Be an Early Stage Founder?
Speaking from experience, Guleri says that finding yourself as an early stage entrepreneur will be the most fun time anyone can have in their professional career. It’s the most extracting time in one’s life, mainly because it’s full of uncertainty and fear.
And it’s because of these factors, Guleri says, that the founders that come out on the other end are those who have a mission and are filled with the right amount of passion for making their business work. There will be plenty of unexpected hurdles ahead and only those who present these qualities will not be tempted to quit, and will inevitably prevail, in the end.
Equally as important, if not more so, is to be the kind of leader that inspires others and can build a team that sees the mission the same as you do and is there for the long journey. “I think it’s practically impossible to do it alone,” says Guleri.
What are the Characteristics of a Successful Startup?
First and foremost, the product you are working on fits into a market that’s growing; you will get the desired result. Secondly, your business must have a viable economic model that eventually can build a profitable company.
So, you will need a significant growth market to which you’re building a product that can satisfy that need. And that product needs to be backed by a robust financial model that will keep everything from falling.
When Is the Right Time to Start Pursuing Your Great Idea?
What sets the U.S. apart from the rest of the world is its entrepreneurial spirit, and anyone can become an entrepreneur, at any age, says Guleri. But this doesn’t automatically mean that everyone can succeed. For that to happen, launching a startup needs to be done for the right reason, which is a commitment to the long-term creation of real value.
So, in other words, no startup will ever make it if the first goal is to be eventually sold off. “This is the exact same reason,” Guleri says, “that it’s not always the best product that succeeds, but the one that has the most committed team behind it.”
When Should You Go After Venture Capital?
There are some milestones that you need to pass before going after venture capital. But, probably the most important is to make sure that you understand your business and economic model and how it influences the inner workings of your company. Also, make sure you have your unit economics figured out.
“It’s okay not to have certain ‘cards’ that are not face up, yet. This is the reason why you walk up to a firm like ours at Sierra and say ‘Hey Tim, I’m here [at this level], I think I have a pretty strong business model. Here are the six or seven cards that I want to see face up in the next 18 to 24 months. Will you be my partner?’ I love conversations like that,” says Guleri.
He also advises entrepreneurs to “not take venture capital until your base value proposition is figured out and you know you have a business you can create a long-term value proposition on.”
What Tim Guleri always tells the companies that he’s taken under his wing is to “be aggressive when it comes to growing your business but be patient when it comes to looking at the metrics.” Another way of putting it is to say that you need determination in seeing your mission through, but also take your time in analyzing and continually improving the financial foundation that your business is built upon.