Note: This article was written in 2004 and has been updated, though the evolution of the market has continued traditional expectations in 2013 still seem to have faded.
The financing landscape today has changed radically. Everything you learned in the last 5 years is obsolete. We are back to looking like the early 1990s again as everyone has "moved up the food chain" one to two levels. True Series A financings with money designed to develop the product are very rare and most first institutional investments are in companies with proven "traction", this means lots of sales completed. In the past there were usually TWO rounds of financing before this was required, one to develop the product and another to accomplish the first several sales by testing the sales and marketing processes. This means you need to get much further on much less money. This can mean adding a service component to your market entry strategy, corporate partners, or many other strategies, but unfortunately, it will mean certain death for the majority of first-time entrepreneurs who do not have a well-formulated and proven financing strategy and plan.
Companies literally need to design their business plans around these conditions, or risk failure. There are many ways to tune your launch strategy to require much less capital. Today, you need to get to a breakeven level faster, and certain milestones must be met at the right time. Early-stage capital is much harder to get, may cost equity, or even be completely unavailable for certain stage companies, creating a huge gap for what used to be expansion financing in late Series A and Series B rounds. Many companies will fall into this chasm if they do not plan well in advance. You need a capital-raising plan for the next two years at all times, which includes multiple steps/rounds.
If your company is a picnic, then the financing environment is the weather. You can not change it! You need to adjust your plans to it -- before you head out! Understand this because many great companies and ideas will fail only because they have an unachievable capital path in today's environment.
The Traditional Financing Lifecycle
Now let's look at 2002 to 2004
A different world where lots of good companies will fall
into the precipice that used to be the "Series A to Series B stage" financings in the
$1.5MM to $5MM area that angels can not usually do and VC are not doing much of today.
Bottom Line: You NEED to adjust your business plan in
major ways to account for this reality!
Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. And helps established companies scale faster using the six AirTight Management™ systems. And helps companies successfully raise capital.
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