Entrepreneurial Obstacle #1
Recently, I was invited to a Women in LAVA panel with four female entrepreneurs and a female moderator. It was intense for me. It was similar to the experience and emotion that you have when you walk out of a dark theater after watching a beautiful film. I was inspired.
At the panel, the women talked for about two hours of how they developed their current startups. Some of which were racing towards the $1B value mark (Jilliene Helman at Realty Mogul.) It is not technically important for me to recount the stories of each woman to illustrate the point of this post. What is important for this post is a separate post spoken by Amanda Cohen and transcribed by Chef’s Feed. She says:
“Any woman who’s running a restaurant has my respect. This is an industry that showers rewards on men, and ignores women who’ve been in the game for twice as long and done twice as much. So if a woman can put up with it for long enough to open her own place, she’s made of steel and deserves my unending admiration.”
At the Women in LAVA event, a woman stood up to pose a question. She asked all four panelists if they felt that they had obstacles in front of them because they were women. One of the women said that she had a man (her co-founder) in her pocket for such occassions. Another woman said that she was never taken seriously as the CEO of the company by the mostly male VCs that she was approaching for money. But, all four of the women tossed off the question without giving it much consideration. Once they reached the other side of struggle, it became a non-issue. Conversely, success is a non-issue when you are struggling.
I have an incredible portfolio of successful Latina entrepreneurs in my pocket. I know that the struggles they have been through to achieve success. But, in the biographies that I have written for them, I do not address the struggles very much. I focus on their success. But, I want to bring them to Los Angeles to talk about their entrepreneurial journey. And, I want them to talk about the bad stuff along with the good stuff because I want to provide the next generation of female entrepreneurs with the shortcuts to success. Meaning, as female entrepreneurs, they need to use the laws of cumulative advantage to their, well, advantage.
Obstacle #1 in the Startup Rubric: Funding Parameters
There are five categories that need to be addressed by any successful entrepreneur. Each category has elements within it. The categories are:
- The Entrepreneur
- The Product and/or Service
- The Market Opportunities
- Funding Parameters
The easiest one to address for this post is the Funding Parameters. There are four funding parameters for the entrepreneur at the seed stage:
Founder Money > Friends & Family Money > Angel Money > VC Money
To get to each stage, you need a certain amount of money to achieve success. For Founder Money, it varies wildly but for the most part, the rule is that you need to invest about $100k. In the past, this was done through loans and for some reason in the present-day eco-system, entrepreneurs dont apply for loans but your probability of success is exponentially greater if you have $100k in your pocket as a Founder than if you have $0.
For Friends & Family money, the magic number is $250k. This figure is fixed by an equation that multiplies the entrepreneurs time by the entrepreneurs hourly rate. This means that the amount of time that it takes to raise your Friends & Family funding is fixed as well. (I know VCs that won’t look at something that is older than 9 months as if 9 months was an expiration date on the startup.) The $250k in a best case scenario would also be a loan at 0% for defined terms. Meaning, the entrepreneur would pay back his friends and family the money that they lent. This is important because it keeps the cap table clean for when the next stage kicks in.
For Angel money, the magic number is $3M. A properly syndicated deal among Angel networks should take the entrepreneur to $3M in raised capital. This money will allow the entrepreneur to market the minimum viable product (MVP) that they developed with their Friends and Family funding.
For VC money, the magic number is $10M. A properly syndicated deal among VC groups should take the entrepreneur to $10M in raised capital. The sky is the limit when you have those types of resources.
So, if we go back to the beginning, the first obstacle for any entrepreneur is Access to Capital. There is no easy answer for how you go about raising money but friends all agree that you basically follow one simple rule: Call as many people as possible and pitch them for money.