Having worked with start-up companies in the valley for most of the past 14 years, I’ve had the distinct privilege of working with some unbelievably talented entrepreneurs. Many of them have served as great mentors and sources of inspiration. Nearly 10 years ago, I visited a fledgling start-up that had just secured their first institutional round of funding from oh, an obscure little firm on Sand Hill Road (a firm whose name is synonymous with a redwood tree).  The company was looking for equipment financing to finance servers they were purchasing.  Quite honestly, I was skeptical about the company’s prospects of success at the time.  Regardless, I marveled at the focus and passion of the founding team. 8.5 years after that first meeting, the company held a successful IPO and started trading under the ticker symbol of LNKD.  Although I had ZERO to do with the company’s success (if I hadn’t done the loan, somebody else would have), I felt a sweeping sense of fulfillment having first hand witnessed the evolution of a small, scrappy start-up into a wildly successful, yet still scrappy company. We’re currently in a golden age of entrepreneurship.  Revolutionary computing technologies have enabled the existence of the lean startup.  In turn, we’ve seen thousands of great companies get ushered in; Companies that might never have been formed due to funding constraints 10 years ago.  Areas such as New York, Seattle, and Los Angeles have joined Silicon Valley as entrepreneurial hotbeds. While all this entrepreneurial activity is decidedly terrific, competition is at all time high – not just for customers, mind share, and partners, but for equity dollars (see my blog on the Series A crunch). One area that often gets overlooked relates to being strategic about fundraising.  Many entrepreneurs simply view outside capital as the necessary jet fuel to propel their companies to unprecedented heights with the simple formula of raising as much as possible while suffering the least amount of dilution.  We all know that starting a company is inherently risky. A hundred things can and probably will go wrong at some point despite the entrepreneur’s best efforts to be strategic about areas such as product fit, product development, and customer acquisition. Fundraising decisions should be done in a way that aim to mitigate the probability and effects of missteps, not the increase the risk of what happens when a slip occurs. A good example of this is the entrepreneur who takes money at irrationally high valuations, only to be burdened with unrealistic expectations. As such, more than ever before, a company’s financing decisions early on play a critical role as to whether a company’s succeeds…or fails.  The unfortunate byproduct of...

Read More