MARCH TO IPO: (First of a series) - Aim before pulling the trigger

"Hey, John, we are a bit worried. We have a great idea, a couple of great people and see a hole in the market to exploit. And we got $1M from a wealthy internet millionaire. I know that sounds good but now we are wondering about the next round of financing. Did we rush into the seed round and damage getting the next one?"

That is a wise question. You will find several of similar language in my emails. In this case it's a bit late to do much about repairing any damage. But let's respect the questioner because most seed rounds done by first time founders do have major errors in them that can make the next round very difficult.

Here are some of the tips I give the startups I coach:

• Plan all the rounds on your way to IPO. If you don't you may find your first deal will have a valuation or special terms in it that are so repugnant to the next round investor community that none will be interested in talking to you. For instance, who owns your intellectual property?
• Value your company for each year up to IPO. Investors want to see the numbers. If you don't provide them, they will invent their own. How many people will you hire? What cash will you need each year? What will sales and profits be each year? The VCs want to see what return on investment they might get if all goes well. How many times will their investment be for waiting how many years for what percent per year ROI? Do your numbers.
• Beware of the devil in the details of your seed investor's term sheet. Board seats, veto authority on certain subjects and actions, approval rights on the next rounds of financing and more are all going to restrict you and the next round of investors. Get them right to get the next round.
• Get a lawyer who has done startup rounds before. You must learn what is standard practice with startup investors in your community. A lawyer active with startup financing will know what to negotiate.
• Respect that your march to IPO will be full of surprises. Anything can happen. Including Google or Microsoft knocking on your door sooner than you expected. Or stealth startups popping up to give you the scare of your life. A corporate buyer can suddenly back out of acquisition talks for reasons not related to your business. Or you may find even amazingly greater success than you could ever dream of. I have experienced all of those and more. Whatever you think today of such uncertainty applying to your startup, be sure to do a sketch of your march to IPO. You'll find yourself in a much better position to guide your fledgling business to success, including getting the investors you need, year after year, to IPO.

BOTTOM LINE: Before you accept your seed round, do a sketch with numbers of your march to IPO. That will give you a more realistic way of preparing for your subsequent rounds without having to do repairs. I have spent as much a three years helping undue messes created in one startup that got off to an unwise start with a poorly done seed round. They have survived and are now doing well. But most suffer a lot more. Use that good mind God gave you. Do your thinking. Do your numbers. Prepare. The march to IPO is hard enough without having to do a lot of repairs along the way. A great seed round will germinate a great harvest. It is one way serial entrepreneurs build their unfair competitive advantages.