Accretive Technology Partners: Raising Venture Capital

A talk about Raising Venture Capital by Michael Cline at Stanford University's Entrepreneurship Corner.

Lectures:

Lecture 1 (01:55)

Managing the Tradeoff between Venture Partner and Financial Terms

Michael Cline, Founding Partner at Accretive Technology Partners, suggests that when fundraising, the venture partner is much more important than the financial terms. However, Cline qualifies this advice by suggesting that you pick a venture partner much like you would want your daughter to pick a husband. Not only does the commitment, capability and integrity of the investing partner matter but so does your importance to and relationship with the larger venture firm.

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Lecture 2 (02:04)

Raising Money outside Silicon Valley

Jason Green, Founding Partner at Emergence Capital, suggests that outside Silicon Valley entrepreneurs may need to approach the fundraising process differently simply because there are fewer VCs and less capital available sometimes. Green argues that outside Silicon Valley and perhaps even in the Valley, the best course of action is to have to option to say no?that is to not raise money because the business is self sustaining.

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Lecture 3 (04:12)

How to Pick a Venture Partner

Jason Green, Founding Partner at Emergence Capital, speaks on how to select a venture partner. Green emphasizes that selecting a VC is a long-term partnership commitment and encourages entrepreneurs to pay attention to four things when selecting a venture partner: 1) Negotiate from a position of strength, 2) Find shared belief, 3) Listen to your instincts and 4) Pay more attention to the partnership than the terms.

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Lecture 4 (01:51)

Advice about Term Sheets

David Frankel, Founding Partner at Altirah Capital, discusses term sheets and how to structure a venture capital deal. Frankel suggests that when raising money an entrepreneur should 1) Favor VCs with simple term sheets, 2) Retain an experienced startup lawyer and 3) Explore any unfamiliar terms.

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Lecture 5 (03:38)

What to Expect and to Avoid in Term Sheets

David Frankel, Founding Partner at Altirah Capital, offers his advice about what entrepreneurs should expect and what they should avoid in the term sheets offered by VCs when raising money. Frenkel suggests that entrepreneurs should expect VCs to have liquidation preferences, pre-emptive rights, first refusal rights, anti-dilution rights, board member seats, CEO replacement rights and full disclosure. In contrast, Frenkel suggests entrepreneurs should not accept a big valuation from an individual investor who cannot follow on or ?traditional terms? that are not adequately explained and justified.

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Lecture 6 (01:43)

Replacing Yourself as CEO

Tom Friel, Chairman of Heidrick and Struggles, suggests that frequently in entrepreneurial ventures replacing the founder CEO with an experienced CEO is needed for the venture to scale and grow. Friel argues that perhaps the hardest experience for a founder is to recognize that their company might do better if they were to take a different role than CEO which often determines whether the venture stays small and successful or scales to something greater.

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Lecture 7 (01:27)

Leadership Is the Scarce Input for a Startup

Tom Friel, Chairman of Heidrick and Struggles, discusses the three fundamental inputs into a startup: people, capital and an idea. Friel argues that people, particularly leaders, are the scarce commodity and are more valuable than gold or oil.

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Lecture 8 (03:49)

How to Attract Great Talent

Tom Friel, Chairman of Heidrick and Struggles, discusses the challenges of building a great team and suggests that startups can attract great talent with a number of factors, including money, self-fulfillment, belief in the mission or belief in the founder. Friel argues that to attract and retain great talent, entrepreneurs should be generous with at least one or more of these factors and sufficient on the others. Furthermore, Friel adds only a great team can make the startup a large and successful organization and sometimes this includes the replacement of founders with a professional CEO.

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Lecture 9 (04:01)

How Much Money to Raise?

Michael Cline and Jason Green, Founding Partners at Accretive Technology Partners and Emergence Capital respectively, argue that when raising money, entrepreneurs should raise enough money to get past essential proof points in the business. Furthermore, Green emphasizes that entrepreneurs should be focused on raising enough money to flush out the key risks in the business.

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Lecture 10 (01:19)

Cautions about Raising Too Much Money

David Frankel, Founding Partner at Altirah Capital, cautions against raising too much money in an early round for two reasons. First, if things go poorly and the firm receives a lower valuation in the next round (down round) then substantially funding the venture will be difficult. Second, if you raise an appropriate amount of money in an early round and things go well you can always raise more money in a later round at a higher valuation.

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Lecture 11 (01:52)

Option Pools and Sharing Wealth with the Team

Jason Green, Founding Partner at Emergence Capital, shares insights into how entrepreneurs should think about establishing an option pool. Green suggests reserving 20% to 30% of the ownership as an option pool and to think about sharing wealth in order to create a bigger pie rather than holding to tight to a smaller pie.

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Lecture 12 (02:30)

Setting Valuation

Jason Green, Founding Partner at Emergence Capital, describes the common situation of an entrepreneur raising money and receiving questions about the expected valuation for the startup. Green argues that one of the biggest mistakes made by entrepreneurs is responding to this loaded question and suggests that instead entrepreneurs should just let the market decide the valuation.

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Lecture 13 (01:53)

Creating Real Value: Substance over Form When Raising Money

Michael Cline, Founding Partner at Accretive Technology Partners, reminds entrepreneurs that when raising money they should not let the form of the presentation?the showmanship?overwhelm their substance, which is in essence how they create real value for a customer.

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Lecture 14 (02:39)

Using Agents to Help Raise Money

Jason Green, Founding Partner at Emergence Capital, suggests that agents are generally not used to help raise funds in an early stage company although they may be helpful in a late-stage private equity deal. Instead, as Tom Friel, Chairman of Heidrick and Struggles, emphasizes early stage entrepreneurs are connected to VCs through informal networks of advisors who make an introduction for the entrepreneur.

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Lecture 15 (02:40)

Venture Funding Challenges in Emerging Economies

David Frankel, Founding Partner at Altirah Capital, suggests that in established venture environments, VC investors and entrepreneurs share common assumptions about what makes a fair investment deal. In emerging economies these rules of thumb have not been established and so raising money can take more time or be more challenging.

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Lecture 16 (01:21)

Which Investors Add Value

Jason Green, David Frankel and Michael Cline, the Founding Partners at Emergence Capital, Altirah Capital and Accretive Technology Partners respectively, discuss the qualities of VCs and investors who add value to the business. First, Green suggests that investors should be a sounding board. Second, Frankel argues that investors should bring experience that helps the startup avoid time consuming pitfalls. Third, Cline argues that valuable investors both act as a conscience and help connect the startup to customers. Finally, Green suggests that entrepreneurs should do reference checks on their investors to ensure they make the right partnerships.

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Citation

Michael Cline, Accretive Technology Partners: Raising Venture Capital, Spring 2007. (Stanford University: Stanford eCorner), http://ecorner.stanford.edu. License: Creative Commons Attribution-NonCommercial 3.0

Instructors

Michael Cline

Additional Notes

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