THIS WILL BE THE FIRST in a series of posts on fundamental questions entrepreneurs face when they raise venture capital or angel funding. The hope is that in reviewing the basics will help when you are planning your fund raise.
The subject came up in a conversation with an entrepreneur wanting to raise seed capital to finance the formation of three investment funds. While this is not your typical entrepreneurial endeavor and involves no high technology product, the basic questions the entrepreneur faces are the same.
After working through projections about how much money the effort was going to require and nailing down costs as best he could, the entrepreneur had a big number and was getting push back from potential investors.
Here are the questions I posed and what the responses were.
First, did he need to raise all three funds to have a successful business? The answer was that raising the first fund would give him a viable business.
Second, what would it cost to set up and raise the first fund? Here, the number dropped from millions to substantially less than one million.
Third, would the effort to raise the second and third funds be substantially hampered by raising the funds sequentially instead of all at once.? The answer was no.
I was trying to find the real amount the entrepreneur needed to launch his business to help him decide how much money to ask investors for. The two underlying dynamics here are that 1) investors do not like to part with money they do not have to and 2) seed investment is the most expensive money to raise.
While it is nice to have a big bank of money when you are starting out, if you raise more than you need you pay a heavy price for it. Because the money is more costly, you give up more ownership than if you deferred raising some of the money until later, when you have some success and can sell your company's equity at a more favorable price.
If a viable approach here is to raise money for the first fund only, start the fund and then raise money for the second and third funds later when the business can show some success, management (the entrepreneur) is likely to be left owning more of the economic value of his venture. The risk, of this approach is that the money will be hard to find later because of lack of success or reasons beyond the entrepreneur's control. And, of course, you have to spend more time looking for money.
In this case, raising a smaller amount to jump start the first fund also answered the questions the entrepreneur was already fielding from the family offices he had targeted.. And, it also brought his amount down to an amount that would be easier to fund from family offices and angel investors, his primary investor focus for the fund raise.
The image above is part of a mosaic found in Pompeii. Happy Halloween to all.
FOR THOSE OF YOU WHO ASKED OR WONDERED about proof to back up my Chicken Willie and entrepreneurial drive post last July, here's a newspaper photo of my client and successful entrepreneur suited up for his second passion during the Clinton / Bush election, now many years ago.
The photo, from the Washington Post's Metro Section, expresses some of the passion that the entrepreneur also directed to his business. That kind of passion helped my client succeed in a competitive business environment. The fact that he was able to locate the photo to share with us is further evidence of entrepreneurial passion.
If you missed the posting last July 27, here it is repeated below. Enjoy!
"I GOT THE CALL while driving up the expressway after work one Friday. President Bill Clinton was visiting our city and I had a very excited client on the phone.
"Clint! You've got to look for me on the local news tonight! I should be on a story about President Clinton."
"What?" I replied. "You hate President Clinton."
"I know but you have to watch! My brother and I were wearing our chicken suits along the motorcade and something happened. We were interviewed by reporters."
This was when I learned that my valued client, paragon of the community, successful entrepreneur and businessman had a side to him I did not know.
It turns out he was politically active. No, he was politically passionate. How could I not know that?
And, he explained, he took great offense during Bill Clinton's campaign against George H. W. Bush in 1992 when Clinton operatives started showing up at Bush rallies in chicken suits carrying "Chicken George" signs. It made him so mad that he bought two chicken suits that he and his brother would wear at Clinton rallies and events carrying "Chicken George" signs. This had been going on for a long time. It was years since Bill Clinton had first been elected.
"I was along the motorcade route in my chicken suit with my sign having a great time talking with people. But the motorcade was delayed and then more delayed. And, then someone tapped me on my shoulder."
"When I turned around it was a tall guy in a black suit holding and Secret Service badge. He asked me if it was my box labeled Chicken Suit in the stairwell of a nearby office building."
"I knew this was no time to lie."
My client, we will call him George, explained he had carried his chicken suit in the box and changed in the stairwell. The Secret Service found the box and called the bomb squad. The President's motorcade was rerouted. The news crews caught the his meeting with the Secret Service but it did not make the nightly news to George's disappointment.
So, what's my point? George was a successful entrepreneur, whose success created hundreds of jobs. He created a great business from an idea, perseverance, and passion while he was still in college. He is someone to be admired. And, at least in this one respect, he was a bit eccentric.
People who take on the challenge of building and growing a great business are not milk toast. Many of them have quirks. Some (not George) are downright difficult to deal with. But most of them share one trait. They are passionate about what they do. And they act when they see something that needs to be fixed."
A FRIEND RECOMMENDED an audio book series from The Great Courses series over lunch the other day. The lecture series is called The World Was Never the Same: Events That Changed History. by J. Rufus Fears at the University of Oklahoma.
As my friend described it, the course reviews history through events, like the discovery of America by Christopher Columbus, that dramatically changed the course of human events. The most recent event treated was 911 and all the changes it has brought about in lives around the world. Most would agree that 911 changed the world as we knew it.
I think, my friend continued, that the line in the sand President Obama drew in 2012 and failed to back up may become the next event that changed history when people look back on our time. Since then, he noted, the war in Syria has become unconventionally brutal with chemical weapons, bombing of civilians and health care facilities with the resulting destruction of a nation state that has sent unprecedented numbers of immigrants fleeing into Europe.
If you watch the news, you know much of the rest. Turmoil in the Middle East, ISIS exporting terror throughout Europe and beyond, budget strains and humanitarian crisis throughout Europe followed by rising nationalism that fueled BREXIT and the rise of an electorally significant right wing party in Germany for the first time since World War II.
Unsettling stuff, to be sure. But what is a line in the sand? And, where did the phrase come from?
First, to set the record straight, there was no Obama "line in the sand" in 2012. He drew a red line instead. In a press conference on August 20,2012 President Obama stated:
"We have been very clear to the Assad regime, but also to other players on the ground, that a red line for us is we start seeing a whole bunch of chemical weapons moving around or being utilized. That would change my calculus. That would change my equation.
. . . We have communicated in no uncertain terms with every player in the region that that’s a red line for us and that there would be enormous consequences if we start seeing movement on the chemical weapons front or the use of chemical weapons. That would change my calculations significantly."
This was followed by the use of chemical weapons in Syria without an American response calling into question America's resolve and, some believe, accelerating the escalation in the horrible violence and war crimes that have engulfed Syria and the Middle East.
So, where did the line in the sand originate? One candidate, the recipient in this case, is identified on the coin above. Antiochus IV was the Seleucid Emperor who ruled a vast empire to the east of Rome that included Syria. In 168 BC, he launched a campaign to annex Alexandria to his conquest of Egypt. He had successfully subdued the remaining part of Egypt in a preemptive strike in 170 BC.
This second campaign, however, was thwarted before it could reach the city. Roman Senator Gaius Popillius Laenas confronted Antiochus and demanded he withdraw or face war with Rome. While Antiochus was stalling for time, Laenas drew a circle around him in the sand and demanded a decision before Antiochus left the circle. The Seleucid Emperor conceded and the phrase "line in the sand" came into being.
Wikipedia describes both the red line and the line in the sand as figurative points of no return or as limits beyond which safety can no longer be assured. A poker player might call it a bluff, at least when it is not backed up with action. And, of course, that's always the question when someone draws a line. Is it really a bluff?
Was Laenas' line in the sand a bluff? We will never know. The Syrian he was facing did not challenge his threat, choosing instead to retreat and leave Alexandria alone.
Image courtesy of the Ancient Selfies Collection. Coin front of Antiochus IV, Seleucid Emperor, 175 to 164 BC. More about Antiochus and other ancient rulers in Ancient Selfies: History Revealed Through The World's First Social Media to be published later this year.
IF YOU FOLLOW THIS BLOG and wonder who identified the most coins from our September 19 entry Who do you know? wonder no longer. The winner and recipient of the proof copy of Ancient Selfies is John Runningen, Atlanta-based Principal with Commenda Capital.
John identified six of the faces on the coins. If you number the rows (1-4) and letter the columns (A-D) , those faces are Cleopatra (A1), Ptolemy I (A2), Philip of Macedon (B1), Marc Antony (B2), Alexander the Great (C2), Octavian Augustus (C3),
Congratulations John! And, thanks to all who expressed interest in the exercise.
The identified coins were hand stamped and issued in the four centuries before Christ. Cleopatra's coins was issued by her while she was under attack by the forces of her brother Ptolemy XIII on the island of Cyprus. Alexander's coin was issued from Ecbatana, the city where he threw a three month celebration of his great victory over the Persians at Gaugamela.
These stories and others like them are the subject of Ancient Selfies, soon to be released in paper and ebook editions.
THIS SYRIAN BORN NIECE of Roman Emperor Septimius Severus became the first woman to openly and officially rule the Roman Empire. On her coin, Julia Mamaea appears with heavily curled hair and wearing a crown.
She first came to power with her mother when her son, Severus Alexander, ascended to the throne at the age of 14. He was thrust into the position when hIs predecessor Elagabalus was murdered by the Praetorian Guard. The two women, both named Julia, were named co-regents for Alexander because of his youth.
The two openly administered affairs of State for the under aged Alexander. Julia ruled ably at first, reversing scandalous policies of her predecessor, appointing 16 distinguished senators as her advisors, and making the distinguished lawyer Ulpian her chief advisor and head of the Praetorian Guard.
When Alexander reached adulthood after the death of Julia's mother, Alexander conferred on Julia the title of consors imperii . The position, which meant partner in rule, had been previously offered to co-emperor Lucius Verus by Marcus Aurelius. The appointment of a women to the position was unprecedented at the time.
Romans, however, were not unaccustomed to the idea of being governed by a woman. Julia's aunt Julia Domna had been remarkably visible in administering governmental functions for her husband Emperor Septimius Severus and her son Emperor Caracalla.
During Julia's reign, Julia received the title of Mater Castorum (mother of the camps) and Mater Senatus (mother of the Senate) and largely avoided scandals. Her contemporaries described her as virtuous. She consulted with the Christian theologian Origen about Christian doctrine.
Even so, Julia could ruthless when her interests called for it however. When her son married Barbia Orbiana in 225 and her father was made co-emperor, Julia had Barbia removed from the palace and ordered the murder of her father (and co-emperor).
You might think it would be hard to find any common ground between a Roman Empress and a Presidential candidate what with times being so different. You might try foreign policy however. Some think that is a shortcoming of Hillary and international affairs were certainly not Julia's strong suit.
As consul imperii she accompanied her son on military missions with the Legions.. And with him she tried to settle a major dispute with the Alammani. She got a 'deal' with the Alammani but the terms were so unpopular with members of Rome's 22nd Legion that they lynched both her and her son, raising their own Maximinius to the throne.
HUNDRED OF YEARS after his demise medals with his image stamped onto them were awarded to athletes at the Olympics Games. So he was remembered in ancient times differently, perhaps, than he is now.
As Rome's emperor he was the most powerful man of his time. He wielded power confidently and sometimes ruthlessly. But he also loved poetry and music and frequently performed his compositions in public. One reported private performance earned him infamy.
He was wild about chariot races and games. So much so, that he even drove a ten horse chariot in the Olympic Games much to the dismay of his advisors. He was so enthusiastic about charioteers, in fact, that he styled his hair in their unique fashion combing it up and forward as shown of his coin. While his hairstyle disturbed his advisors it also contributed to his popularity with the masses. It was important to him to be popular with the masses.
While most historians question whether he ordered the burning of Rome in 64 AD, others believe the massive fire that consumed much of Rome during his reign and killed many was a deliberate act of an emperor who wanted to make Rome great again by clearing the way for his own public building projects. He was said to have sung the "Sack of Illium" in stage costume and possibly played the lyre while the city burned.
Whether he was the architect of Rome's destruction or not, he did make Christians the scapegoat for the fire and ordered the systematic persecution of its members as punishment. Tradition holds that Christ's disciple Peter was among the many crucified during this persecution. In Peter's case, the belief is that he was crucified upside.
He acted with confidence driven, you might say, by an inner compass that justified almost any action that secured his power or advanced his agenda. He ordered the murder of his mother and first wife. And some believe he personally killed his second wife by kicking her at a public function while she was near full term in her pregnancy.
In the end, Rome's legions revolted against him and the taxes imposed to fund his massive building projects. To avoid capture, he ordered his personal secretary to take his life, saying "What an artist dies in me" while contemplating his 'suicide.' His death was followed by a year of civil war during which four different individuals claimed the crown of Rome's emperor.
Of course, we cannot know the full picture of Nero's life with any certainty. The records are too old and incomplete. But the coin does give us a glimpse of his hairstyle and we know his reign was eventually 'trumped' by the leaders of his legions.
Which raises the all important question? Is there a reason the Donald wears his hair the same way? And, will Americans be Trumped this election cycle?
Come back next week for 'Hillary'd".
SORRY FOR THE DELAY IN POSTING. Technical difficulties.
Today's post introduces the ancient money portion of our focus. As we note in the right hand column. "Money is the constant. Companies need it to grow. Ancients invented it."
Above you will find the images of 16 ancient coins and an opportunity. Each of these coins were hand stamped from hand engraved dies and widely circulated before the birth of Christ. Some were issued centuries before.
The opportunity is in the form of a contest.
Whoever identifies the most coins correctly by five p.m. on Sunday, September 25 wins a pre-publication proof copy of Ancient Selfies signed by the author. Send your entry to Clinton@readjanus.com (if you post it as a comment everyone see your answers). Identify the figure on the coin or the issuer of the coin to win. In the case of a tie, the first entrant sending in their tie entry will be declared the winner.
Ancient Selfies will publish in print and ebook form later this year. It provides an anecdotal history from 550 BC to 40 BC using the coins rulers issues to illustrate the times and, in so doing, invites readers to experience an ancient world that created the foundations for our modern civilization in a new and tangible way.
Ancient rulers realized the power their coins had to broadcast images that could shape impressions and deliver messages to their subjects and trading partners. (See our earlier posting on Who invented the Selfie.) With carefully selected images, they used their coins to convey messages of strength and power, to celebrate accomplishments and beliefs and, sometimes, to deceive. In the process, they left a record of images that let us see the ancient world as the ancients themselves saw it.
Good luck with your entry!
SOMETIMES I WONDER HOW ODD a technology startup would look to the average Joe. If you described one to them, would they even believe it was a real company with strong prospects?
Here’s just one example of an early stage company with an innovative product in a highly regulated industry. It is smartly conceived, smartly executed and intelligently financed. The company, which will go unnamed here, is headquartered in the southeastern United States.
Like many startups, the company started out as an idea conceived by the founder. Organized as a single member limited liability company to start, the initial funding came from friends and family in the form of notes that convert in the future, at a reasonable discount, into company ownership later when a third party financing is completed.
The first work was to see if the concept for the product could be designed and built. Rather than build out a staff of employees and rent space to build the prototype, the entrepreneur hired out most of the work carefully contracting to preserve his company’s rights.
As you would expect, there were some zigs and zags as the concept was fleshed out and researched with at least two significant conceptual changes to make the product what it is now. Stretching his dollars when he could by associating with a fully equipped venture incubator / accelerator and hiring out regulatory work to experts, the founder was able to compete the prototype and the product testing required to get his product ready for regulatory review.
A second round of financing to get the product through regulatory review and into early commercialization became necessary after the initial financing got the company through its product design and testing. After a broad search for regional and northeastern angel investors, the best money available was from a successful serial entrepreneur with family ties to the founder.
Again, a convertible note was employed with a reasonable discount to the valuation obtained when the company does its first third party financing. The need for that is anticipated next year after regulatory approval is obtained and the company gears up to commercialize the product.
Of course, lots of other things have been happening with the company. Reviews of the pending product with potential users and industry thought leaders has generated strong interest. A couple of key hires have been made and the company switched its legal representation on the recommendation of one of its investors.
Here’s the company today in a nutshell. It has completed its product design and testing and is beginning the regulatory approval process. Initial interest from industry thought leaders and buyers is strong.
The company is a single member limited liability company with the founder as its only owner. It operates out of the founder’s basement with two employees who mostly work from their locations where special equipment and resources are more readily available but who meet at least weekly to plan. The employees have options to buy ownership in the future contingent on their meeting milestones. It has money in the bank sufficient to reasonably carry it to the next phase all in the form of convertible debt.
The managing board consists solely of the founder who is presently building an advisory board. This board will not have voting rights or responsibilities to manage the company. To fill this board, he is attracting people with expertise that can help him with the challenges he will have with the business as it grows from a development company into a commercial enterprise.
So here we have a modern startup. Its product is ready and going into regulatory review. It has one owner, significant debt in the form of convertible notes, one founder, only two employees, an office at home, three lawyers in one law firm in three states, two out-of-state investors, and four advisory board members in four states across the country.
It also has important relationships with an incubator and service provider. And, of course, money in the bank to fuel its next stage. What it lacks in brick and mortar it makes up for in intellectual property and progress.
And, what did the founder think when he saw this posting? His two big take away messages were to be frugal and to "make sure you have savings to live off for a LONG period before you jump out on your own."
He said he severely underestimated how long fundraising would take because he did not believe people who told him it would take so long. Fortunately, he had saved multiples of what he thought he would need before he started.
Image above copyright Clinton Richardson from Arches National Park.
I COME BY MY ENTREPRENEURIAL chops honestly, in a time honored way. I inherited them.
And then I worked for decades to hone the few skills I started with by working with the leaders of hundreds of growing businesses as they faced the thousands of challenges that stand in the way of growing something new and important. I also went to law school and partnered with some great lawyers with over the years. But I learned the most from working with talented business leaders as they grew their businesses.
I am an unabashed fan of people who grow and sustain profitable businesses. I have advised them, invested in them, and served on their boards. I know what a challenging and all consuming task business building can be. I know the creativity and courage involved. And I know how starting and growing a business can change a person's life and make them more alive.
I know this from watching my father's transformation from executive employee to business owner and operator when he opened his first carpet mill in 1967. I was in high school then and moved with the family from the cozy suburbs of the North to the unfamiliar small town South. Northwest Georgia, the center of the country's floor covering industry at the time, became our new home.
I learned what a "southern breakfast" was from the crew on the loading dock of my father's plant while working there weekends and during the summer. It's an RC Cola and a Moon Pie, at least on the shipping dock of a certain carpet mill. I worked that shipping dock and the sample room. I swept floors, washed trucks, drove forklifts, moved rolls of carpet, made deliveries and did whatever I was asked.
At home over the kitchen table my father would suffer through my many questions about the business. How was he handling this? Why he was doing that? Always, he handled them with grace and insight. And over time, he took to sharing financial statements with me so I could get a better picture of what was going on.
In the end, I chose the legal profession instead of a career in business. My dad was an enthusiastic supporter. I started in litigation but quickly gravitated towards business and deal making. I took to heart the old adage that the qualities necessary to start and grow new businesses skip generations and decided, instead, to work with entrepreneurs and help them accomplish their objectives.
It's been a great run with some entrepreneurial activities to supplement my legal practice. In these blogs, I will reflect back on a lifetime in the trenches and, hopefully, continue to be a constructive contributor to the American entrepreneurial experience through these blog entries.
Follow these blogs and send entries on to your friends. And consider, as offered on the right side of this blog page, subscribing to the RSS Feed to get weekly notices when entries publish.
TODAY WE TAKE A BREAK FROM BUSINESS to answer some questions posed by readers about an earlier post. Specifically, questions about my experiences with night photography from readers of this blog. Thanks for your interest in the topic.
Those who know say it takes between 30 and 45 minutes until your eyes fully adjust to the night so that you can see well under a star filled sky. You learn these kinds of things when you take up night photography and have to manipulate the controls of a full frame camera in the dark.
Shine a regular flashlight at the camera and your adjustment time begins anew but use a red light and you be able to see without resetting your eyes to daylight mode. This is another thing you learn and the reason why you see small red lights shining here and there when you photograph the Milky Way from a dark site with other photographers.
The first time I ventured out into the middle of the night to try and photograph the night sky was a few years ago while we were visiting Arches National Park in Utah. It felt a bit weird heading out into the dark alone.
Much of our obsession with lighting our cities and homes, I think, reflects a longstanding fear we have of the dark. It can be unsettling being in the dark when you can hear but cannot see what is going on around you. Trying something new and unfamiliar was part of what motivated me to night photography in the first place.
You could see the Milky Way in the night sky from my suburban neighborhood when I was a kid long ago. I remember the awe we all felt on a clear moonless night when the Milky Way showed best. In most cities now, that’s not a realistic option because of how much more light we flood our skies with. So my other motivation was to visit a sky again that I already knew but had, like most of us, lost.
On my first night in Arches a few years back I had the skies mostly to myself. My only company was a pack rat who kept running in and out of the beam of my flashlight and, after an hour or two, a male voice from the parking area nearby wanting to know what I was doing. Eventually, the voice turned into a man named Art who had read about night photography and walked over to watch the process. Otherwise, it was just me, the sky and an occasional car driving by on the park road.
In the few years that passed between that outing and my trip to Utah this Spring, cameras have improved and much has been written about photographing the night sky. So, I was not sure what to expect this time. Would there be more people out taking photographs? Would I get better pictures?
The first clear night skies we had was at Capitol Reef National Park in late April. Heading out at 2:00 a.m. to catch the Milky Way without the moon, I drove 15 minutes into the Park, set up and shot for a few hours before returning to the motel. I did not see a single person or car. The cold, the quiet, the spectacularly lit sky and the isolation were invigorating.
A few days later, also late into the night but this time at Arches National Park, I found myself in the company of others. In fact, the place was alive with photographers of different skill levels speaking multiple languages.
It was the new moon which is ideal for shooting the Milky Way but the bigger difference had to be the existence of camping grounds within the park. The extra photographers made the process more challenging as people would flood an area with headlights or flashlights messing up your vision and your shots. But it also had the feeling of an event, with folks sharing an interest and working together to get shots. And, some of the shots were beautiful.
My latest trip was to a park designated a Dark Sky Site by the International Dark Sky Foundation. The site consisted of a long shoreline overlooking lake Michigan that you accessed by walking through the woods on an unlit path for a little over a mile. While walking down the path my eyes adjusted to the dark and I could get glimpses of the sky through the trees.
When I arrived at the shoreline the sky was filled with the light from the Milky Way and there were dozens of people on the beach enjoying the star filled sky. A few had cameras but most were spread out on blankets enjoying the dark and the night sky.
If you have an interest in getting out yourself, let me know.
This posting is in response to questions asked since my first posting about the night skies. The photograph above is copyright Clinton Richardson 2016. It was taken along the shore of Lake Michigan at Headlands State Park in Northern Michigan.
Money is the constant. Companies need it to grow. The ancients invented it.