Articles
Raising Venture Capital - Funding Strategy
Alan Bristow, ICON66
Dave Cornwell, founder and CEO of CDC, first went to the VCs in 1998 and closed a £1 million round; this was followed by £2 million in November 1999 and finally £8 million in October 2000. His approach provides many useful lessons for early stage companies and provides a blueprint for a successful funding strategy.
When Dave first decided CDC required VC funding, it was a fledgling business with a vision. They knew they had great technology, knew the market and the demand was being driven out of the USA. To enable CDC to deliver on its aspirations - it needed money.
Let's raise some money
But how much do we need? Well the business has a lot to prove. It needs a lot, but raising money ahead of our ability to deliver is unlikely to help the VCs manage their risks - no point going to raise lots until the business can start to demonstrate the scalability of the business model and the development of the management team. First round funding secured the objective of establishing a foothold in the USA and the initial build of the management team, especially the appointment of the FD and sales team.
More money - 2nd round
Think a good six months ahead of need. Business proving itself, revenues growing, opportunities growing, management team more developed, Internet opens new opportunities for our enabling technology. Still relatively early stage - so manage risk, manage equity dilution, manage confidence and use lessons of the past to provide substance for proving the future. Pass go and raise £2 million.
More money - 3rd round
Business pace accelerating, revenues growing, US and Europe getting increasing acceptance/demand for products. US and European sales and marketing need a lot more money. Now is the time for a big funding round. Pass go and raise £8 million
Next Year IPO?
Key points to successful Corporate Finance Strategy:
- Take it in 'bite size' chunks
- Understand the VCs need to manage their risks - help them do it
- Build a quality team from the first round
- Understand intimately the market and the competition
- Have great technology but have even better sales and marketing teams
- You do not need to be 'first mover' - you need to be moving. The pace and tempo will change as the business develops
- Valuation
- Manage dilution
- Give it time - on every round
- Be sensible
- APPOINT ICON!
