Rules for a startup during an investment boom

    In connection with the next boom of dotcoms in the USA, some startup owners only think about how to “raise” more money. It’s easy when investors line up and start-up startups at the seed level receive seven million dollars each. 42Floors startup co-founder Jason Freedman talks about startup presentations: each is given two and a half minutes for a presentation, then a short session of answers to questions, no business plans. An audience of five hundred “angels” is eager to invest in someone. In a couple of days, you can easily close the round of investments with a seven-figure amount, and investors will bargain, offering two to three times more than the declared amount of financing. One of these sent Jason four emails, three SMS, then called and sent a message on LinkedIn - just to fit in before the close of the round.

    Startup 42Floors was founded in November 2011, it provides an online service for finding office space. Investments by March 2012 amounted to $ 400K.

    Jason Friedman formulated several rules that must be followed by a startup in a hot market.

    1. Mutual respect. Even in the most difficult of past times, Friedman writes, when he sometimes received up to 30 failures in a row, no one showed disrespect to him. Many of the failed investors tried to help with something. Now the situation has turned back, and now it is our turn to show respect for investors when many of them have to refuse. The startup world is cramped, and we will have to work together for a long time to come. Our manners will not be forgotten, good or bad.
    2. Optimization by people, not money. The proposed investments are amazing: ten million, twelve, fifteen ?! This is just crazy. The entrepreneur's job is to attract investment for the business, and often this means evaluating the business as expensive as possible. But if you want to build a large company, then for the next four to five rounds of financing and for eight years of development it is more important to think about the right partner for the business, and not about the amount of investment. This is not an eBay auction where the one who offers the best price wins. We need to look for long-term investors - strategic partners.
    3. Lack of rush. It is difficult to build a long-term relationship with an investor if you drop a 30-minute presentation on him and demand to write a check immediately, otherwise you will leave the room.
    4. Attract more money. The extra money in the account can come in handy for scaling up the business, which is necessary in preparation for the next round of financing. Now it is believed that at the sowing level, investments of $ 1.2 million are normal.
    5. Fix the price of the stock (priced round) . Thanks to convertible bonds, the startup has practically no risk of sudden closure. You can always attract extra money while there are people who want to write checks. With documents for a round of AA, it is not necessary to even discuss the conditions. If earlier the process took two months, now it’s five days. But the problem with convertible bonds is that there is an upper bound on the valuation, and if your startup is the same as 80% of other startups, and it does not shoot sharply, then the next round of financing may turn out to be less than this border, and then some problems will arise.

    And we must remember that the "gold rush" will not last long and the pendulum, as always, will then swing in the opposite direction.

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