Heads up: six fundraising tips for first-time founders

For Irish start-ups, the challenge of raising venture capital is huge

Julie Sinnamon, the CEO of Enterprise Ireland, looks set to take the work of the State agency to a new level. Photograph: Frank Miller

Julie Sinnamon, the CEO of Enterprise Ireland, looks set to take the work of the State agency to a new level. Photograph: Frank Miller

Mon, Jul 7, 2014, 01:00

Raising venture capital can be daunting for first-time founders. Most founders figure their way through the initial funding of the business from the four Fs: friends, family, founders and fools.

With the product built, a significant injection of capital is required to ramp up customer acquisition – the challenge now is to convince venture capitalists (VCs) to back your dream.

For Irish founders, the challenge is bigger, with the extra complexity of dealing with a mixture of Irish and US VCs, different legal environments and expectations on terms.

It’s a demanding and time-consuming job for any CEO, but there are things you can do to make the process as productive as possible.

1. Read the books

For the uninitiated, the world of venture capital can seem like a confusing swirl of new terminology. Concepts like control terms, convertible loan notes, preemption rights and reverse vesting are obtuse, but understanding them is critical to your negotiating strategy and the future of your company.

The good news is that you can get smart quickly by reading the various start-up blogs from people such as Ben Horowitz and Mark Suster, and also some of the excellent books that have been written on the topic. For Irish founders, two books are required reading: Raising Venture Capital for the Serious Entrepreneur by Dermot Berkery and Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist by Brad Feld.

Feld is a VC at Foundry Group and Dermot Berkery is a Partner at Irish VC Delta Partners. Both books give insights into how VCs think and break down complex technical terms into easily understood concepts. More importantly, the books give very clear guidelines to founders on how to negotiate the best deal for your company.

2. Put yourself in their shoes

VCs are people too. They risk their investors’ money and are expected to show significant returns.

General Partners gets most of its compensation on the “carry” or upside in the fund, so the pressure is real and personal. In addition they have to deal with founders’ egos, demanding limited partners, the pressure of raising the next fund.

The last thing they want to have to do is explain at their Monday partner meetings, to their ultra-smart, super-competitive colleagues, why your little company isn’t gaining traction, and is running out of cash. So take the time to understand what motivates your prospective investor and tune your pitch to hit those hot buttons.

3. Talk to Irish and US venture capital firms

If your ambition is global, your investors should be too. Having local VCs means you can have regular access to local advice and networks. Irish VCs have good international networks as well and many have done deals involving US investors and have great relationships there.

As an Irish company, you are likely to have more success with Irish investors in an early round. Sean Mitchell, founder and COO of Movidius recommends concentrating on there first: “My advice would be to focus on Irish and European VCs for the early rounds (Seed and Series A) at least. It’s rare that a US VC would invest early into an Irish company, especially if no local investor was already invested.”.

Getting US investors in early however, can lay a strong foundation for future larger funding rounds says PieroTintori, founder of TerminalFour: “I absolutely benefitted from an Irish VC as my first ‘port of call’. But I believe there’s a case to be made, when considering larger initial rounds or subsequent rounds: having a US investor can help you with subsequent fundraising in the US, your exit strategy and generally raising the profile of your business.”

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