Yesterday, I was interviewed by TVB Pearl Money Magazine, a local TV program, about startup funding, particularly VC funding. I’m no expert but EditGrid did run through a few stages and was supported by different types of fund including bank loan, angels, government fund and VC.
If you are doing a startup, perhaps the following Q&As may be interesting to you.
1. Background on your business (nature of what you do).
We make online spreadsheet: EditGrid. It runs on a “Software as a Service (SaaS)” business model.
2. Can you take us back to the beginning of your business: How did you start? What was the first thing you had to do? Where did you get funding?
The first thing we did was to build a team by pooling all the best people I can find at that time. We had some ideas to start with, but honestly it tends to change a lot down the road when we have more knowledge to generate better vision of the world. We always put the team first, thus our company name: Team and Concepts - team is before and more important than concepts.
Then we needed money. Our solution was to borrow. When you do startup, you need to take the risk.
Later, we have angel investors and government funding. But they usually come in after you’ve something more solid.
3. Moving on to VC funding: at what point did you decide to seek venture capital?
The way VC really works is to have money chasing deals. VCs are in the business of funding the best investment opportunities they can find. Probably you will know you are ready when you are tracked by a few VCs who actively approach you and try to know more about you, your company and product.
To reach this point, you need to build traction. That’s buzz around your product, users using your product, customers paying your product, big name partners working with you, etc. VCs want to see where you are now more than where you will be in the future. VCs want visibility of exit. I would say a business plan and a quality team is NOT what they want the most. They want to see some solid execution that has already been done.
4. What was the process like? How do you go about doing that?
A VC approached us and looked at our company, determined we have potential but a bit early stage for them. He made lots of referral to some series A VCs. A few of them found us interesting and send a representative to visit us in our office and watch the demo. Some asked me to make a demo to all their partners in Beijing. (note: VC tends to have all partners in the company endorse a deal before they move forward). The term sheet was signed a few days after the meeting - before I left Beijing. It was fast. From that point to cash in bank took about 2 months.
We didn’t submit any business plan. The key part of the subsequent due diligence was a number calls to our clients and partners.
5. What are the pros and cons of selling stakes of your business to venture capitals or other private equity investors, for that matter?
Acceleration. Taking VC fund accelerate your success or failure. Of course, the VC will also enjoy a big part of your success at pay day.
With more money, we can hire good people and can focus to do what make sense for our business.
6. Has anything changed ever since you got investors on board?
Our series A investor is WI Harper, they are good and entrepreneur friendly. So, they largely leave us alone to take our company forward and always be available to give advice and help when we need them.
If you have chance, try to take money from reputable VCs.
7. For those with an idea to start up their own business, what’s the best route to getting funding? When does private investment come into the picture?
Take risk for your company. Focus to do one thing and one thing only. Do it better than anybody else in the world. The market and the VCs will tell you when you are ready.