Monday, September 2, 2013

The Right Time to Fundraise in the Silicon Valley

[This post is an excerpt from my presentation entitled Silicon Valley Fundraising Trip: Tips for the Non-U.S. Based Startup Founder.]

The Silicon Valley is a fantastic place to visit almost any time of year. We have great weather here year-round, many tourist attractions within a stone’s throw of one another, and fantastic sights for the nature enthusiast.

But if your goal is to travel to the Silicon Valley with the goal of raising venture capital for your foreign-based startup, to avoid disappointment, set the right expectations, and make the most out of your trip, consider whether your startup is primed and ready for this step.

Ripe for US Fundraising. The best time for a foreign startup to come to the Silicon Valley to raise venture capital is when it can make the following statements truthfully:

  • We raised a small seed round of capital with a local venture capital firm and angels
  • We have publicly launched our product in our country
  • Our product has gained significant traction in our domestic market
  • We are ready to launch our product on the US market
  • We are opening an office in the US that will be handling US operations and marketing
  • Our management team has already relocated to the US (or is relocating to the US within 3-6 months)
  • Our CEO reads, writes and speaks fluent English and is able to present our company to US investors, strategic partners, and clients in a clear, competent and confident manner.

Almost There. If a startup meets some (maybe 4-5) but not all of the criteria above, it does not mean that the founders should not come to the Silicon Valley to fundraise. But it does increase the likelihood that this is going to be the first of several trips. A startup at that stage may still be able to successfully raise capital from Silicon Valley VCs, but it may easily take 6 to 12 months or longer and multiple trips to get to a term sheet.

Raising money in the Silicon Valley is difficult, even for companies that fit all of the criteria above. So a company that does not, has a greater hurdle to overcome. Still, I believe the preliminary trip, if approached correctly, with due preparation, forethought, and the right expectations, can be instrumental in laying the groundwork for a future financing by giving the founder an opportunity to establish contacts, by growing the founder’s professional network in the Silicon Valley, and by clarifying areas of improvement in the startup’s fundraising position.

More Work to Do at Home. A startup that either has not launched a product, or has launched a product but it has not seen significant adoption domestically, and that has not received support from its local investors, has more work to do at home before venturing out to fundraise internationally. That is not to say that such startups should not attend international conferences or take business development trips, whether to the Silicon Valley or elsewhere. I just think it will be more productive to realize that it may be too early to be fundraising abroad in earnest, so the trip, if taken, should have other purposes and expectations attached to it in the founders’ minds.

The Chief Executive Officer. To state the obvious, the right CEO makes the difference between a startup that gets venture capital funding and one that does not. As we said above, to be successful at raising capital in the United States, the foreign CEO has to have fluent written and conversational English, though he or she may speak with an accent and many do. The CEO must also have the personal and business skills that make him or her a good person to represent the startup in investor meetings.

But what if the CEO does not have good English? Unfortunately, neither engaging translators to assist in pitch meetings, nor hiring U.S. promoters or U.S. investor relations specialists to help with fundraising, actually works.

Ultimately, the investors have to believe that the core team has what it takes to succeed, and if the investors have a language barrier with the CEO, they will simply not have sufficient basis to form that belief. The solution is one that is true for all companies, local or foreign – if the CEO is not the man (or woman) for the job, find a CEO who is!

In startups, one of the founders is the CEO by necessity. Sometimes it is the right fit. And at other times it is not. Sometimes it is the right fit for the country, where the startup is based, but not for the U.S. Any company that hopes to be successful must recognize wherein lie its team’s weaknesses and fill them with new hires. If the current CEO will not be able to fundraise successfully in the U.S., the startup should entertain the idea of recruiting a U.S.-based CEO or another CEO in their country with solid “western” experience. In that situation, the current CEO can take another title, whether it is President, Chief Technology Officer, Chief Financial Officer, or whatever else best fits his or her strengths. Unfortunately, relinquishing the helm can be a major pain point for founders. I am sure some of my readers are wincing as they read this advice.

The Bottom Line. If the founders of a startup believe they absolutely must raise capital in the United States, and if, after honestly assessing the strengths and weaknesses of the current team, they realize that they do not have the right candidate among them for the job, then they have to reconcile themselves to the difficult reality that such candidate must be found elsewhere. The same, incidentally, goes for filling any other holes that stand in the way of a startup’s success in raising capital in the United States – these holes must be (a) identified, (b) evaluated, and (c) resolved, preferably prior to the founders investing very heavily into their U.S. fundraising efforts.

However, it may also be the case that, despite some initial flirtation with the idea of coming to the United States to raise capital, the founders will ultimately decide that their chances of raising funds domestically, or in Europe, or in Asia will be better than in the United States and will come at a lower cost (emotional, financial, temporal).

There may be a lot of investment capital aggregated in the Silicon Valley, but there are oh so many contenders from all over the world all vying for it!

Disclaimer. Regardless of how well-positioned your startup may be to raise capital, be prepared for the process, almost invariably, to be more frustrating, more disruptive to your business processes, and to take longer, than you expect. There is no guarantee that the process, even when it is well-executed, will result in raising VC capital in the Silicon Valley.

Happy company making!

Inna


White Summers  Inna Efimchik, a Partner at White Summers Caffee & James LLP, specializes in assisting emerging technology companies in Silicon Valley and beyond, providing incorporation, financing, and licensing services as well as general corporate counseling.
LEGAL DISCLAIMER

Copyright Notice. The copyright for all original content in this post and any linked files is owned by Inna Efimchik. All rights are reserved.

No Attorney-Client Relationship. This post has been prepared by Inna Efimchik of White Summers for general informational purposes only. The information provided herein does not constitute advertising, a solicitation or legal advice. Neither the availability, transmission, receipt nor use of any information included herein is intended to create, or constitutes formation of, an attorney-client relationship or any other special relationship or privilege. You should not rely upon this post for any purpose without seeking legal advice from licensed attorneys in the relevant state(s).

Compliance with Laws. You agree to use the information provided herein in compliance with all applicable laws, including applicable securities laws, and you agree to indemnify and hold Inna Efimchik and White Summers Caffee & James LLP harmless from and against any and all claims, damages, losses or obligations arising from your failure to comply.

Disclaimer of Liability. ALL INFORMATION IS PROVIDED AS-IS WITH NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. YOU ASSUME COMPLETE RESPONSIBILITY AND RISK FOR USE OF THE INFORMATION IN THIS POST.

Inna Efimchik expressly disclaims all liability, loss or risk incurred as a direct or indirect consequence of the use of any information provided herein. By using any information in this post, you waive any rights or claims you may have against Inna Efimchik and White Summers Caffee & James LLP in connection therewith.




3 comments:

  1. "Your blog is really amazing and amusing. The information you have provide is very helpful for many people like me. Thanks for sharing. Keep post the good news.
    "
    Applying Business Loans Online

    ReplyDelete
  2. Great post, I appreciate you and I would like to read your next post. Thanks for sharing this useful information.
    Online Fundraising
    Raise Money Online
    Crowdfunding
    fundraising ideas
    fundraising websites

    ReplyDelete
  3. Really enjoyed reading this article - glad you shared it. I've found it very interesting. I've also discovered Tony Charalambides fundraising blog - you should check it out.

    ReplyDelete