I have been up to my ears with grading final exams and coaching an outstanding founder as he proceeds toward his seed round financing. My apologies for the lack of daily notes to you. Today I will share with you a bit of what is going on.
A.C. is getting very close to receiving a term sheet from a world-class venture capital firm. He has completed about a year of modifications to his original idea. The outcome of his creativity, sacrifices and hard work is an amazingly different business idea that will change the Web 2.0 world. I will keep the details confidential for now.
You can benefit from knowing how A.C. is proceeding. First, he is communicating directly with a Partner in the VC firm, not an Associate. And E.C. is responding via email by the hour, sending answers quickly to questions sent to him. The quick answers are well written and clear. This prompt response and quality of reply demonstrate he is very knowledgeable of his bplan, his technology and what needs to be done to succeed. To keep the momentum up, you must respond within an hour or so as the questions from a VC arrive in emails. That pre-supposes you already have thought about the bplan questions and have answers.
People meetings have intensified. There have been a series of monthly and then weekly meetings in person with A.C., the Partner and others in the VC firm. And recently an outsider, an "expert", has been hired by the VC firm to evaluate the bplan. This person is also a candidate for a possible role in the core team. The core team has not yet been recruited by A.C. It would be better if the founder had his core team together, but in this case that is not the case. As a result, A.C. has wisely looked for a VC Partner who has a network that can find people to fill the core team.
Financial forecasts have been updated frequently, and are changed daily. Part of this is due to fine tuning hiring for the first 12 months of the company's life. Other changes come from alterations of the equipment needed to build the first product based on input from equipment company sales people and shifts in the architecture of the first product as design ideas are modified weekly. And of course the valuations are being altered as A.C. prepares to jockey for the best opening position in the up-coming valuation negotiations. This is going to be a multi-million dollar seed round with a lot more capital to be raised in the future, and the IPO valuation will be very high. It is a big deal. For now, A.C. is remaining silent with the VCs on how large the pre-money valuation will be. I expect that will be first discussed in a week or so.
A.C. has hired an outstanding lawyer. He is experienced with the finest startups and their VCs. The costs are not high if you pick the right lawyer. I'll speak more about that tomorrow. Today the lawyer began the process of incorporating a company for A.C.
BOTTOM LINE: As you begin to sense the vortex has started that will bring you to a term sheet, be aware of how important it is for you to respond with answers quickly. That requires you have an excellent bplan worked out. It can and will change as you progress, but you do need to have answers ready. Weeks cannot go by without responding. Note also the sequence and importance of what is being done. There is a pattern here that most VCs follow. Follow it and you'll get to a term sheet in much better condition, faster.