Up until now we have been discussing how to build your business. This week we will talk about how to build a company.
Countdown: 2 weeks to go!
Last week we invited you to look at the gaps in your venture and make a plan to fill those gaps. Keep doing the good work this week and keep moving the ball forward to the finish line!
- Complete your weekly retrospective and planning ritual and really map out what you need to do to get to a successful finish at the end of the accelerator.
- If you have not done so already: Create a pitch for your business in the style of a Demo Day pitch. Check out example pitches from the 2021 Tufts $100k New Ventures Competition to get a sense of what this pitching style looks like.
- If this is your first time creating a venture pitch, start with the timeless Guy Kawasaki template that sums up everything you need to cover in a 5 minute pitch. As teams who have done this in the past can attest: the pitch is a really good forcing function to make sure you really understand the common terms used in venture creation and pitching, and to identify areas that need work before you can effectively communicate your venture to potential advisors, team members and funders.
- Take a 30 minute break and scan our Learning Center to make sure you know where your venture stands with regard to all the key concepts related to new venture creation. Bookmark the overview page and check back often, as we are continuously augmenting our content to keep it up to date.
- If you have any questions about new venture creation at any point, try looking for an answer in our searchable knowledgebase.
Financing: Funding your pre-revenue venture
Contrary to common misconception, most new ventures don’t start by raising capital from venture capitalists or VCs (in which they receive an investment in return for giving away part of their company). Not all businesses go that way and for businesses that do, they usually need a few years to build traction before they become attractive to VCs.
For new ventures that are just getting started, there are several funding options:
- Revenue: This is by far the best source of cash, as it validates that you are solving a problem that customers are willing to pay for.
- University competitions, prizes and awards: For eligible student and alumni entrepreneurs, there are a lot of university-sponsored competitions, prizes and award programs where they can apply and/or compete for cash prizes and in-kind services. Tufts University offers a variety of options, including various competitions and prizes from the Derby Entrepreneurship Center, the D-Prize administered by the Fletcher School, and the Friedman Prize offered by the Friedman School.
- Equity-free grants offered by the US Government, including the United States Small Business Administration (SBA). This includes SBIR and STTR awards. These grants are a good match for technology based ventures that need more runway to harden their technologies before commercialization.
- Equity-free grants offered by various foundations. These are particularly relevant for non-profit ventures which are not a match for VC funding. For example, the Cummings Foundation funds small local non-profits serving communities in need in the Middlesex and Suffolk Counties of Massachusetts.
- Crowdfunding. Kickstarter, Indiegogo and similar platforms have made it possible for new ventures to raise money from backers who care about their projects. Some ventures are very compatible with crowdfunding (e.g. media projects), while others can be challenging (e.g. hardware gadgets). Read our knowledgebase section on crowdfunding to learn more.
- Growth-style equity fundraising path. This is what most startup entrepreneurs think of when they peruse their fundraising options. This source of capital is the best match for growth style ventures who are solving a big problem, in a market that is very big and growing rapidly, and where the market is not already taken by dominant players. Read this CB Insights article to learn more about VC funding.
- If you are interested in pursuing the VC route, your first step is not actually raising money from a growth stage VC such as Andreesson Horowitz or Sequoia. You will instead be starting with angel investors or seed stage VCs. Check out our Knowledgebase section on angel and seed rounds, which typically involve “convertible notes” or “SAFE” notes.
Team and Talent
In the beginning of your venture, your first concern should be finding the right cofounders and making sure you are aligned in values, goals and expectations. As you make progress, you will need to bring on new team members.
Hiring great employees is a big job for any hiring manager and especially hard for entrepreneurs building a new venture. Your venture is typically less well funded than established companies who are competing with you for the same talent. In most cases you will not be able to afford the compensation packages that big companies can offer to your candidates. You will need to pitch your first 10 employees differently than if you were trying to hire them to work for you at, say, Google. You will also need to get creative about their compensation package.
The mentality of hiring for a startup starts with finding common ground in what your company is trying to achieve and what your candidate’s goals and aspirations are, and solving for new hires who are aligned with your mission and vision while being a little more flexible on the skills and experiences they bring to the table. You can teach a new hire new skills, but you cannot teach passion – solve for someone who is passionate about the same things you are passionate about.
Your work as the leader of your venture does not stop once you hire new people. You need to work on creating a high performing team. You need to intentionally define and cultivate a culture that is unique to your venture. Building and nurturing a team is an evergreen process – if you invest in your team from Day 1, your venture will be more resilient and will be more successful in navigating obstacles along the way.
Legal considerations
Legal considerations can be daunting to first time founders. There are so many angles to consider. Following are some key concepts that you should know.
- Company formation: Incorporating your venture as a business entity with the US Securities and Exchange Commission (SEC) and choosing between C-Corp, S-Corp, B-Corp and LLC for a for-profit venture and a 501c(3) for a non-profit venture. Pro-tip: If you plan on ever raising money from VCs you will need to incorporate as a C-Corp and you will be best served if you incorporate in Delaware, which has the best established set of corporate law where it comes to growth-style startups.
- Stock and stock options: For growth-style startups who intend to raise a round of VC funding, you should think about how to work with stock and stock options up front. Brad Feld’s book “Venture Deals” is a very good introduction to this area.
- Intellectual property protection: Most people think that IP means patents – in fact, IP also includes trademarks and copyrights. IP strategy can be counterintuitive – sometimes it makes sense to keep your technology proprietary as a trade secret rather than protect it by filing a patent. Upcounsel has a great article on IP that explains the basics. Our advice is to speak with an IP attorney about your situation to make sure you know your options and make the right choices.
Our advice is to read up on all this and talk to a startup lawyer to make sure you are making the right choices for your venture. There are many law firms who offer deferred payment plans for pre-revenue ventures – they can help make sure you don’t create future work for yourselves by making the wrong choices up front.
Additional resources
Consult Module 6 of our Self-Guided Learning Center to learn more.
Thank you all,
Tina, Elaine, Adolfo and the Derby Entrepreneurship Center team
