Adrie's Blog

Fundraising - a long road

During my 35-year long career as a Technology entrepreneur, I have used all sorts of different ways to finance my business.

The first time I needed funding - was when I started a consultancy firm in 1975 and needed starting capital. With a simple business plan and a lot of enthusiasm, I got a line of credit at a local branch of a big bank relatively quickly. In all about US$100,000 measured by today's value, which at that time was still within the realms of singing authority of the local bank manager. During the life of that company, I funded it with Factoring and credtilines - which was very do-able for a services company that invoiced its clients monthly. Only in the final year, prior to the sale of the company did I do a refinancing deal for 33% with an informal investor.

Given the success of my first company, it got a lot easier to raise money for my next company. I dealt with a specialist at Ernst & Young, and raised money via VCs ad private equity funds in an early stage of my new firm - a Systems Integrator. Terms were very reasonable at that stage and so I ended up with shareholders such as a division of Deutsche Bank, NPM, CIN VEN and Paribas. The problems started when I was in the middle of a roll-up - whilst I was working on integrating all of the acquired companies and consolidating them into one entity AND we were moving to one new headquarters, a recession started. All of this was too much for the company to bear and we faced an acute liquity problem. One of the many issues you then face is that the existing shareholders close their wallets and you are forced to go outside to raise new money. And ofcourse, being in somewhat of a hurry - you come across all sorts of idiots that keep you hanging on. For instance I had a VC that had access to all our information - and then turned round after keeping us hanging for 6 weeks and turned it down because the company was in IT... I mean come ON! He knew that on day one. In the end I found several informal investors who were willing to participate and two new VCs - and ofcourse I re-invested myself as well. Only then were the existing shareholders prepared to come along - which is always at a high cost to the founder. You have to be very careful at that time not to be blown out of the water yourself completely. In the end, it all turned out well - but it was touch and go for a while...

It is clear that there are many ways to finance a company - each with its own dynamics and dependent on the stage of the company in question, its industry and offering, stock, seasonal influences etc. I have always had the best experience with Informal Investors - because they often are or were entrepreneurs themselves and can help your company in other ways then just with their money. I would never enter into an agreement with a VC too early on - when you are building a company and many developments are still unclear and uncertain. A VC only looks at the figures, your shareholder meetings will only be about money and not too much about your vision and strategy.

I do have good experiences with VCs but you have to have a solid footing when dealing with them and realise that a VC needs a lot of infromation in order for them to be able to invest. Secondly - the process takes a long time - usually up to 6 months. And one thing I have learnt, is that it is always worth getting a good advisor. Informals should be able to jump in much sooner then an formal investor such as a VC - and as I said - they can help you with their expertise and advise - creating a strong team around you.

More on this topic next week...
In Chicago - you can learn much more about Funding and loans on the 21st October - see www.efactor.com/p/events for further information.
For those of you in London - we have an excellent Workshop coming up on the 12th November with Paul Grant, explaining all the ins- and outs of "the Funding Game". Not to be missed!