A workshop with Rick Segal

Stage 1 – Dilbert Stage where yer pissed off with your job and have an idea.

Stage 2 – Lemme code something basic and see if it sticks.

Stage 3 – This might work. “this is the greatest thing in the world”. You may be ready to cut someone in for a piece. This is where alot of people make the mistake of cutting people in without the proper paperwork to keep you safe.

Stage 4 – You are ready to make this a full time gig and you need to take money. At this point if you take money from family, friends, etc. you need to make them understand that any money they give you is going to be lost. Angel funding comes next but YOU NEED A STRUCTURE and PAPERWORK.

When you pitch:
Get to the point
Get to the numbers
Get to the people

What’s the point? – Real problems already have some sort of solution. You may have a variation, etc.

The VC needs to understand the problem quickly since they have super short attention span.

Follow up with the solution instantly. Pop open the laptop and show them something. Quick, fast, killer demo. Make them say “wow that’s awesome”.

Get them to the AAH HAA!

The VC needs to understand what the bet is and what the payoff is. Don’t waste time if a VC does not get it.

Start up budgets are about expenses, not revenue. You’re not expect to make money in the first year, especially as a start-up. How much money do you need before people will get it?

6 months to raise, 18 months to prove people get it – then repeat again.

Lights on budget to get you in and working everyday and how long it is going to take to “get the bet”.

If you have a technology or solution that requires habit changes, it takes time and money. Revenue is just a dream if people finally get it.

The VC process is slow – 6 months easy.

Assume you’ll get the money for a year, but at 6 months you need to be ready to raise more every 6 months.

“I need $xxx to hit these following milestones before I need more $$$”

People – why you and who the hell are you?

Experience vs. passion. It’s a balance. You need to be passionate but you need to have knowledge. The passion will drive alot of this.

Find people who are smarter than you are. You don’t need to be the CEO at all – keep Founder title.

At this startup stage you need to all be local and face to face at the same table dealing with the issues and challenges. Working remote and distributed is hard and expensive.

The team must have the same passion as you do.

When you pitch, you need to prove you have put in alot of money and time. You need to put in sweat equity, feel the pain, etc. Prove you have been working hard.

Land Mines

VC’s are not a charity – they want to sell businesses. You must be at the point of getting your company out of your hands and into someone else’s hands. If you take VC you do not have ultimate long term control. you will give it up at some point.

You need to know what you are willing to give up. How much control do you want to give up?

30 minute no harm no foul meeting – you should be taking advantage of that.

Initially you will be at odds with the VC when it comes to the contract and term sheets. Make sure you have a good lawyer with you to help and make sure you talk to other people who have been through it as well. There is lots of stuff in those contracts that are negotiable which means you need to negotiate.

Take stuff seriously when the term sheet is in the 30-60 day closing, when due diligence is substantially complete, and you are seeing support inside the VC partnership.

First time you meet you make a small presentation. Second time you are invited back you make the same presentation to everyone in the VC firm. If the VC is hot to trot they will talk for you and defend you against the other partners. (THIS IS VERY IMPORTANT)

The partners of the VC firm must agree on moving to the term sheet.

Make sure you try and keep your term sheet to as short an amount of time as possible since you are locked into that single firm for that 30 – 90 days.

Throughout the process make sure you are working with a lawyer to make sure all of your shares, who you gave bits of the business to, etc. This will save you lots of time on legals.

Don’t ever tell a VC you are talking to others until you have a term sheet. That is one of your only leverage points.

If a VC tells you that you need a partners they are pretty much bought in and are going to help you get that partner.

A term sheet is a binding commitment to continue to negotiate in good faith. There is no obligation to close the deal at all. Once signed you must continue moving and should try and not waste time on the term sheet since you are locked in.

You should have as much detail in the term sheet as possible and both parties should try to stick very closely to that term sheet detail.

At the end of this you need to make sure you are comfortable b/c the worst case is to have sellers remorse after the whole deal has gone down and the shares have been traded for dollars.

Canadian VC’s are generally more risk-averse than the US, but are generally nicer, cleaner, etc. Unfortunately there are only a 5 primary VC’s in Canada and that is a problem.

In Canada there have been several angel groups who have come and gone. Last year approx 21 million angel funding went out. There has never been a good environment that has allowed VC to treat the angels like a farm team. Most angels are independent people and are looking for their own thing. These angels should do a good job of weeding out the garbage and filter the options for VC’s.

Canada actually does well with angels and it’s one of the best kept secrets in Canada. Many stay off the grid and are very active. If you need/want them you can find them down.