4 Important Insights for Entrepreneurs Seeking Start-Up Funding and Investing in Startups

June 13, 2018

4 Important Insights for Entrepreneurs Seeking Start-Up Funding and Guidance for Wannabe VC Titans Who Are Investing in Startups

When it comes to finding insightful articles geared towards Entrepreneurs seeking start-up funding or investors who are seeking guidance on how to invest in startups, there is no shortage of content. In fact, there are at least several thousand new snippets of wisdom published daily across the ethernet and as many published in print via newspapers, magazines and the other tree-killing mediums.

That said, the June 13 2018 edition of the Wall Street Journal is a pot pourri of superb insights for start-up entrepreneurs seeking funding and for private investors (hopefully ‘accredited investors’) who want a stake in the next tech unicorn or the next great company to upend the consumer product, healthcare, medical device or fintech sector.

Our content curators at Prospectus.com spotlighted four of the more compelling start-up funding related articles from today’s edition.  We’d argue that one particular column stands out the most, as it profiles the challenges faced by women, folks of color and other ‘diversity classes’ in the course of their fund raising efforts and attempts to skate to the start-up starting line. The topic of Diversity & Inclusion aka D&I throughout the workplace ecosystem is one that has received an abundance of attention for years. From corporate boardrooms to government agencies and everyplace in between and afar, D&I is a crucial topic for those who embrace the notion that diversity in executive ranks and diversity in the workplace delivers diversity in thought, one of the age-old pillars of innovation. The article below zeroes in on the arena that still has yet to read the full memo titled “Diversity 3.0”-the venture capital industry.

  • Three industries—AI, blockchain and cybersecurity—dominate the WSJ 2018 list of companies that look like emerging tech leaders
  • Start-Up Funding For Angels: How Individuals Can Invest in Tech Startups;
  • New Venture Funds Focus on Diversity; D&I 3.0
  • Tales From the Startup World; Serial Tech Entrepreneur Tells It Like It Is

Three industries—AI, blockchain and cybersecurity—dominate the WSJ 2018 list of companies that look like emerging tech leaders

By Dave Pettit, WSJ

Artificial intelligence, blockchain, cybersecurity.

Startups working in these hot areas of the technology industry take more than half of the spots on this year’s Wall Street Journal listing of 25 technology companies to watch. The list identifies startups that show signs of becoming emerging leaders in the tech industry.

“Those three make a lot of sense,” says Charles Moldow, a general partner at Foundation Capital, a venture-capital firm in Palo Alto, Calif. “These are the areas we are most focused on,” he says.

the list spotlights young companies—all founded since the start of 2013—that have attracted the attention of the tech community, and cash from venture-capital investors. These are companies that have expanded their workforces and, in some cases, have prominent backers and founders with prior entrepreneurial success. Outside of the three predominant technology fields, companies on the list include those working in areas such as health care, financial services, education, and business solutions such as drones.

At the head of the list is Bitglass Inc., a Campbell, Calif., cybersecurity company formed in 2013. No. 2 is Blockstream Corp., based in Montreal, which is four years old and one of five startups on the list whose work is tied to blockchain. Highest on the list among six companies working with AI is Spoke, No. 7, whose formal name is Townsend Street Labs Inc. It was formed in 2016 and is based in San Francisco.

The Journal analysis rewards companies for having founders who created or helped run other startups; they could draw on past experience in developing their business. Roger Lee, a general partner at Battery Ventures in Menlo Park, Calif., says “..past experience is especially relevant if the entrepreneur has previously launched a successful business in a similar market, with the same team..”

Many of the most successful investments by Foundation Capital are in companies created by repeat entrepreneurs. “We love them because they bring a level of focus and discipline,” Mr. Moldow says. “There is much more intellectual honesty. If they are screwing up, they are the first ones to say ‘We need help.’ A lot of first-time entrepreneurs think our expectation is that they are infallible…and that leads to bad decisions.”

Entire story here

Companies seeking to raise capital via private placement of debt instruments and in need of offering prospectus document preparation services turn to investor document specialists at global consultancy Prospectus.com

How Individuals Can Invest in Tech Startups; Angel groups and online platforms can give people outside the venture-capital world access to tech deals. (WSJ contributor Tomio Geron)

start-up-investing platformsIndividuals interested in startups can invest through angel groups or online platforms for early-stage investors like AngelList and Propel(x). Or they can invest in later-stage, but still young, companies through publicly traded funds that hold stakes in companies already backed by venture capitalists.

Investing in fledgling companies can bring returns that are hard to find when buying stock in publicly traded companies. And it can be a thrill. “You can’t discount how psychologically interesting and intoxicating it is” for many people to get involved in startups, says Semil Shah, who invested through AngelList before going on to become a venture capitalist at two firms, Haystack Fund and Lightspeed Venture Partners. “It’s an exciting thing to be around people doing new things.”

That said, CAVEAT EMPTOR: This isn’t the place to put savings an investor is depending on for retirement.

For individuals who want a piece of the action, angel groups are an option that’s growing in popularity. They offer the inexperienced investor a way to learn from more-seasoned hands about the language of investing as well as how to pick prospects. Some angel groups pool investor contributions in a fund and the group decides which startups to back with that money. Other groups give members the option to back individual companies.

The Angel Capital Association offers a list of its member groups on its website. Angel groups often invite prospective members to visit meetings to get to know and evaluate the groups.

Many investors instead have flocked to online platforms, because of the wide access to startups they offer. People investing in individual companies, rather than funds, should diversify with at least 10 to 12 investments because of the high failure rate of startups, says Marianne Hudson, executive director at the Angel Capital Association.“Know that half to 70% of your investments you will probably lose.”

Mr. Geron is a Wall Street Journal reporter in San Francisco. His full story here

New Venture Funds Focus on Diversity; D&I 3.0. Startups founded by women and people of color tend to struggle for funding. These Venture Investors Aim to Change That

The tendency for people to be more comfortable with others who are most like them becomes less of an issue in funding when a company gets bigger, but many women and people of color don’t get to that stage because they’ve been overlooked earlier on. Precursor Ventures is among those that are trying to give those people a better shot at funding. As a rule, a quarter of Precursor’s portfolio companies must have a female founder, and another quarter must have at least one person of color.

Some investors have narrowed their focus even more. In May, Backstage Capital announced a $36 million fund that will invest solely in black female entrepreneurs, writing $1 million checks at a time.

As of November 2017, 34 black women had raised $1 million or more in venture funding for their startups since 2009, according to ProjectDiane, a research initiative conducted by DigitalUndivided, an Atlanta-based startup accelerator that focuses on black and Hispanic entrepreneurs.

Melinda Gates, co-chair of the Bill and Melinda Gates Foundation, says venture capitalists who overlook women and people of color are hurting themselves. “They’re missing valuable opportunities and leaving money on the table,” says Ms. Gates. She says her investment and incubation company, Pivotal Ventures, focuses on diversity in its investments in startups and in acting as a limited partner in venture funds led by women.

Ms. Yoree Koh is a Wall Street Journal reporter in San Francisco and her coverage is here . Email her at yoree.koh@wsj.com.

Tales From the Startup World; Serial Tech Entrepreneur Tells It Like Its: “Many new companies get it wrong when it comes to fundraising and hiring..”

Rand Fishkin
Rand Fishkin

WSJ’s Rachel Feintzeig corners Rand Fishkin, SparkToro founder and former Moz CEO

WSJ: What is the biggest misconception about building a startup?

  1. FISHKIN: That you have to raise money. So many founders direct their efforts to building something that can get funding rather than building something that can profitably get customers. A business doesn’t require funding, but it absolutely requires customers and balanced books and profitability. When you’re optimizing for fundraising as opposed to profitability, your odds of success are dramatically worse.

WSJ: What’s hard about hiring as a startup?

  1. FISHKIN: You sometimes have a harder time seeking out people who are willing to work for less pay in exchange for the low odds of equity turning into something. Because of that, many startups buy into hiring only a certain kind of individual. They come from money already, they tend to be young, they don’t have families. You get a bit of a monoculture as a result. I will not hire that way again. I don’t think those types of people are uniquely qualified.

WSJ: What kind of talent do you think is missing in startups today?

  1. FISHKIN: Maturity and experience are both missing. There’s also a tremendous amount of perspective that startups miss out on by having this monoculture. They’re mostly white and Asian men from mostly middle- and upper-class families who are between 20 and 35 years old. Startups miss out on making things for broader groups, because it turns out monocultures are poor at considering people who are not them.

Read the entire interview by WSJ here

4 Important Insights for Entrepreneurs Seeking Start-Up Funding and Guidance for Wannabe VC Titans Who Are Investing in Startups