Academic Business Advisors

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Looking for money in all the right places

Notes from the SIIA NYC Roundtable June 2014

Yesterday, Robin Warner of DeSilva and Philips moderated a great discussion on raising funds for your education business or idea with Andy Kaplan, Don Burton, Matt Hanson, and Jonathan Harber, all people with money, or representing people with money, looking for places to invest it.

Is there good or bad money?

Take the money when it’s available; when the spigot turns off, it gets really ugly real fast; and when it’s off, the risk strategy of investors is just don’t invest.

All investment money, though, is bad money. Don’t raise money, go out and sell something. Find a customer first. Get your prototype or demo done first. Conserve cash. Get something done cheaply and get customers. If your biggest problem is that you have too much sales to be able to fund, you won’t have any trouble getting funds to expand.

The money you take is the most expensive thing you will ever do, and not just in terms of money, but also in vision and management. When we invest, we impose our vision and style on the company.

How do you start looking for money?

What’s your stage? Are you pre-revenue? Under $1M? Between $1m and $5M?

A venture investor may need to invest $200M in two or three years; they don’t want to have to find 100 deals. You need to match the investment you are looking for with the type of investor who invests in that type of deal or you will be wasting a lot of time.

The best money is from customers; get revenue.

Here is a quick guide:

  1. Build something cheaply
  2. Show it to a bunch of people
  3. Put together a diverse team with different talents
  4. Go to meetups and meet accelerators
  5. Get fluent in the language that educational investors speak

You have to show that you have the people, product, potential, and a path to predictable cash flow. And remember, early stage investors are looking for a 25% annual return on their money; show how you can deliver that.

And you have to solve a pain point that people care enough about to spend money on.

What keeps you up at night?

We want to know that the management team is getting in front of customers and finding what their customers want, and that the customers are coming back.

With the pace of technological change, and knowing that a couple of college kids can invent a technology that can put an established company out of business in a few months, we want to know how tight the customer relationship is.

At some point, we want to know that there is a path to making money. It’s great to scale to hundreds of thousands of users, but at some time, there has to be a way to make money without losing those customers.

We worry about entrepreneurs who wonder if a person is right for the company. 90% of the time, they aren’t, and it will take the entrepreneur 2 years to do something about it. If you’re going to be an entrepreneur, you have to make that decision.

You have to be an optimist, but you also need to be prepared to weather storms. Everything always takes longer than anticipated. Does the company have the resources to pivot? To deal with a new competitor? To survive a change in regulations?