The Startup Process
If someone has an idea for a company what is the process for creating a startup? Anyone who is well versed/educated in the VC/PE industry, tell me what the process is in terms of funding and cooperation with other firms for starting their own startup company from start to finish. Doesn't have to be long, just looking for some perspective. Thanks
I'm a startup founder that's advised/consulted with a couple accelerators, but I have no direct VC investing experience. Also, my area of expertise is life sciences, so take my perspective for what it's worth. This is going to be a super high level overview, and I'm gonna gloss over a lot.
Let's say you have a med device that needs some additional development work done before you go for FDA approval and eventual sales. You think it could be worth something significant someday. You have a couple co-founders, maybe they're your fellow researchers. Fortunately one of you was previously a startup founder, and that role included some business functions, so you make him/her the CEO. Then you form a C-corp, define at least a couple key positions, sign some restricted stock agreements, some employment agreements. Then you secure your IP, which could include executing a license agreement with the institution that owns the IP, or the company applies for a provisional patent directly. This step depends on a lot.
That whole process probably set you back a couple grand at least, and things will only get more expensive from here. Before you hit up your local angels or seed funds, you still need to get some other things going. Like a prototype, or at the very least a good business plan. This could cost you between $500 for pizza and gas money, all the way to hundreds of thousands to develop your prototype or run some tests. So you either have to dig further into your savings, get some friends, family, and fools to give you money through convertible notes, or apply for a grant. Through this process you should probably pick up some advisors whom you compensate with stock options. It'd also be a good idea to get involved with the local startup community, networking, pitch competitions, maybe an incubator, etc.
If you've made it to this point, then you're (maybe) ready to pitch an angel, seed fund, or VC. The kind of individual or group you pitch will depend on a lot of things, like how much money you need, or the maturity of your product, or the makeup of the local investor community. Once you're making these kind of pitches you will need to make sure everything is on point - the slide deck, the business plan, your pro forma earnings and expenditures. Everything. We lost some great investor prospects early on because we didn't have our shit together. Eventually things worked out, but we didn't have anyone write us a sizable check for six months, which is pretty average from everything I've heard.
So, there's an overview on founding and funding a startup. Hopefully it was helpful.
Great post. Thank you.
Much appreciated. +1 SB
Just in response to this, its not always necessary to have a Business plan when starting here. My advice would be to focus on two of the things mentioned above. your structural agreements with your cofounders and above all your prototype. good product wins in the end
Business plans in the tradition sense of the word are mostly out (at least in tech). What most investors I know are looking for is an executed Business Model Canvas like this:
http://www.businessmodelgeneration.com/downloads/business_model_canvas_…
60-page business plans are basically a goat rope and every investor knows it.
Good comment. The reason we had to have a business plan was because we did our seed round through a Private Placement Memorandum (PPM), which included a bunch of syndicate investors, and that was just a requirement by the lead investor. Early on we also did the Business Canvas Model for an accelerator. For a life sciences business I didn't find it too useful, but it fits companies for which sales are a going concern, like in tech.
FWIW my fund asks for business plans (tech focused). We like to be the second round of investors after angel/seed, and we look mostly at existing revenue/scalability/market opportunity. So business plans (even short ones) are preferable. Doesn't have to be 60 pages but shouldn't be 1, either.
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