How Bloggers Help Startups Get Venture Capital



Multi-million dollar venture-capital financing decisions are affected by bloggers and social media.

That’s the conclusion from an academic study, “Putting Money Where The Mouths Are: The Relation Between Venture Financing and Electronic Word-of-Mouth.” See the 2012 report here.

But blog coverage can be tricky. The research shows VC applicants should be strategic in soliciting publicity. The right strategy yields a higher funding amount and valuation.

bwoman stockimages at www.freedigitalphotos.netPublished in Information Systems Research, the study was led by Rohit Aggarwal, an Operations and Information Systems professor at the University of Utah.

“I talked to VCs from many top VC groups, and VCs in general rely on few popular blogs such as TechCrunch, GigaOm, and Venturebeat,” said Professor Aggarwal. “Given their reading behavior, these findings totally make sense.”

But there’s a downside. Beware of the possibility of negative blogger reviews.

“After all it is more of a rejection process than a selection process,” explained the professor. “VCs want to sift through the pile of startup plans on their desks quickly, and are essentially looking for a reason to reject a plan and move on.”

But there’s a downside. Beware of the possibility of negative blogger reviews.

Early funding rounds 

He indicates blog coverage has a strong effect in the early funding rounds. But the impact of the publicity diminishes in later rounds.

“This makes sense, because in the early stages, all they may have is a dream of what they could be,” explained Professor Aggarwal. “As time passes, users, usage, and other accounting measures start to give a better signal about their actual potential.”

To be sure, private equity funding has been a successful approach for the world’s biggest technology companies, such as Amazon, Apple, Google and Microsoft.

Startups need the funding to develop products, recruit employees, pay vendors, and for marketing. In the dot.com heyday, an aggregate $135 billion was raised from VCs in one year.

Since 2000, the total annual VC funding has been more than $25 billion annually. The beneficiaries typically have been IT entrepreneurs.

The study’s co-authors are Harpreet Singh of the University of Texas-Dallas, Ram Gopal of the University of Connecticut and Alok Gupta of the University of Minnesota.

It’s also interesting to note the University of Utah’s David Eccles School of Business has programs in entrepreneurship, technology innovation and venture capital management. It launched the country’s largest student-run venture capital fund with $18.3 million.

From the Coach’s Corner, here’s additional recommended reading:

Eight Strategies to Consider Before Starting A Tech Business — Before you launch a tech business, here are eight salient strategies to remember.

What No One Tells You about Raising Investment Capital — Downturn or not, investment capital is indeed available. That’s true during all economic cycles, according to leading consultant Joey Tamer.

What Should You Divulge When Asking for Investment Capital? — If your startup is the next big thing, but you want venture capital, you can start smiling. Yes, financing has been difficult to obtain in recent years. But entrepreneurs wanting venture capital have reasons for at least a small celebration – the money is starting to flow again after the Great Recession took its toll.

How to Attract an Angel Investor — Now that a UNH study indicates early stage financing by angel investors is more advantageous than venture capital money, what now? An angel investor offers seven tips.

Why Women Receive Less Angel Funding Than Men — It’s well-known that women receive less angel funding than men, but it isn’t because of a male-oriented bias.

“Persistence, persistence, persistence. I’m surprised how few entrepreneurs follow up.”

-Mark Suster


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.





Photo by stockimages at www.freedigitalphotos.net

What Should You Divulge When Asking for Investment Capital?



For many startups, it makes sense to grow organically. But for others, the answer is to seek capital.

So how do you get investment capital? Certainly, it’s critical to make the right presentation to investors.

Such entrepreneurs typically ask noted financial strategist Joey Tamer how much information they should reveal for venture or angel capital.

They turn to her because she’s a strategic consultant to entrepreneurs in technology and digital media, and to experienced consultants in all fields to maximize their practices.

Joey Tamer

       Joey Tamer
www.joeytamer.com


Ms. Tamer says entrepreneurs also typically express these concerns:

  • “I’m not quite ready for a big investment until I get more early traction.”
  • “Will I weaken my position by showing how much I need and how soon I need it?”
  • “Will what I’m looking for move around the community to everyone and shouldn’t I be selective in what I say?”

What’s her response?

“The answer is to stand up and lay out your plans and your rationale,” she blogged in explaining how much an entrepreneur should tell investors when pitching for capital.  “You must treat all investors as if they will become your partners, starting immediately. If you are taking a pitch meeting, you might as well pitch.”

She astutely reminds clients that investors of all stripes do their due diligence. She warns you risk not getting a second meeting, if you aren’t candid and informative.

“It is acceptable to take a short meeting — 20 minutes maximum – or two with potential investors, to get on their radar about your idea, even before you are ready to approach them for an investment,” she explains. “You can report back on your progress of reaching your benchmarks. This establishes an early relationship with them, and allows them to watch you deliver the benchmarks you promised.”

For an example, she suggests a possible scenario:

“Suppose you are looking for angel capital now, and you are presenting to an early stage boutique venture capitalist, who invests in revenue-generating companies, but who sometimes will step down to a seed round of a few hundred thousand dollars.”

Her recommendation:

“Pitch what you want now: say $250,000, and show what you will use the funds for, and what benchmark you will reach with that seed round,” she says.  “Your potential investor might provide it and add a deal structure to his position for the next round, giving him right of first look, or protecting his investment in certain ways, even setting aside all or part of your next round.”

What’s next?

“Next you say you want to raise a Series A round after some specified consecutive months of growth,” she asserts. “You say when you expect that moment to arrive (what Quarter of what year), and what benchmark you will reach in what Quarter of what year with that Series A round.

“You can say that you will look for a growth round following Series A, once you can track the speed of your growth, and can assess competition and market conditions at that time,” she adds.

Ms. Tamer says this illustrates that you understand the big picture – that you fully grasp investors’ concerns about scalability and their likely return on their investment.

“If you look to your investors as long-term partners, this early truth telling and planning sets your relationship on the right path,” she points out.

(Note: I’m very acquainted with Ms. Tamer’s expertise. She and I are members of an organization, Consultants West, www.consultantswest.com.)

From the Coach’s Corner, here are informative resource links:

What No One Tells You about Raising Investment Capital — Investment capital is available during all economic cycles, according to leading consultant Joey Tamer. Ms. Tamer has proven approaches for raising money. “In good times, risk capital is available from all sources, and they compete and sometimes share hot deals with each other; the practice is termed syndication,” said Ms. Tamer.

Eight Strategies to Consider Before Starting A Tech Business — So, you’ve got an idea for a tech business, but you’re unsure about your prospects. Do you know what are important strategies to consider before starting a tech business? Joey Tamer is a strategic consultant to entrepreneurs in technology and digital media, and to experienced consultants in all fields to maximize their practices. She knows the answers.

“If you are beginning your company with Other People’s Money, it is good to have a strong relationship with the Other People and their Money.”

-Joey Tamer


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.






Seattle business consultant Terry Corbell provides high-performance management services and strategies.