Raising Capital

✔Pivoting as a startup, Facebook growing Ep9 4/8

0:00

About that, for startups, early stage companies, the teams are very small. Who's making the decision to pivot? Is it the founder, the team, potential investors, feedback from customers who's kind of guide in this?

0:15

Well, I believe it will be more on all or so sorts of factors that you will make a decision because it shouldn't be solely yourself as a start up, because I previously my ex

0:31

was my real life stories, but then alter the

0:35

Okay, is a business partner,

0:41

he or she may have

0:45

made most of the decisions. And even when we already got a lot of information, feedback from the market, and what the decision should be, which would make more sense. He didn't listen to any of us, and he's made the decision then after he made this decision. He's he finally realized that, Oh, you guys were right. So that actually cost us a lot, you know, time money and so forth. So if best way to put it is to actually have everybody could easily be within the team. And we all make the decision together and see who you know, to make a correct. So

1:26

in a situation like that. So you had a team of three, two people wanted to move forward in one direction. And one guy overpowered the other two and was making all the decisions.

1:39

Yes? What happens is that I mean, it's such a small team, I mean, everyone's doing everything.

1:45

In some cases, do you think you would get rid of that one person from the team or replace that one person or separate the company or just go hey, you know, he wants this we're even though we don't believe it's the right way. We're still you're gonna fall like, how, how's the decision process there? Why did he get more power than the two of you guys? Did he put more money in? Did he just yell more like what happened?

2:10

So we're having was that he actually burned a lot of money

to be exact, about 2.5 million. So that's where it becomes more real. And then we had to pivot probably like twice quickly to get him out of the equation and tried to catch up on everything that we have, you know, kind of put for fallen into the company. So that's this a huge huge learning curve that not to do

2:45

or so what did the investors say during this whole time when they saw the money being burned?

2:49

Oh, so we'll talk about that

2:53

they actually Well, of course, they were upset and we just had to learn from our mistakes, kind of made sure and talk to investors, we should that we want to, you know, kind of make it right, and this is our strategy and plan moving forward and what would be a strategy plan and that's how we kind of pivot on the right direction to move forward so then it will be much more successful.

Silicon Valley Successes after hours Shahid Ep 2

We talked to Shahid Chisty an hour after we finished filming and talked about what question he wished were asked that could help founders on the topic of capital and startups

0:05

Welcome to Silicon Valley successes, we interview experts and entrepreneurs to get the world access to the knowledge and experience that is here in Silicon Valley. Our mission is to create opportunities for those who seek them and help you to become next. So welcome to the after hours, Silicon Valley success

0:22

since being on the program, what some information that you really wanted to mention that you didn't have a chance to all on the show,

0:30

actually, one of the things which I would recommend startups and founders is, is to to be generous. And I mean that in the following way, I've seen a, and worked with a couple of startups and invests investors as well, angel investors, for example, as well. And they have an interesting strategy, which I think is the background to their success, namely the that they've taken the attitude of look will will give you will give you a big incentives so that that incentives always prompt people to try and do their best.

1:16

So for inviting said, that can be almost anything. Yeah,

1:19

I in this case, for example,

1:24

you know, we, we've worked with groups as well who make introductions to investors in certain countries, China has one example. And if you think that multiple startups are talking to these groups, and then if one and they'll give you perhaps, you know, typical ranges of the, the sort of commission structures, fee structures that they might have. And if one company is quite generous in that respect, just as you know, if you think about it person yourself,

1:56

if one company is offering more than the others, the likelihood is that group will, will be incentivized, you know, to do their utmost for that company, because they will be rewarded for it as well. So, I've seen some strategies like that, that that really struck me as being very successful. So you're saying generosity

2:18

other than salary, and possibly equity in the company. Are there any other ways to be generous,

2:25

including, with, for example, board advisors, encouraging mentors, just actually know people who could help you with the business, if you incentivize them, rather than trying to negotiate down to the smallest

2:42

Nicole Nicole of dying, that you can, you can negotiate that you what I noticed is that as example, these people that I've worked with, before, they've really got people motivated to, to try and help the company and the staff up as hard as they could. So question or that motivation, if you're giving away that much your company,

3:05

what's the left though, you should be scared of that? Or is it grows so fast, hopefully, everyone still went, yeah, that's

3:13

that that's a very good point. And actually, that that comes back to some of the subject matters that we were talking about the media, you know, the VC industry, the alternative routes of funding and financing that have a reason crowdfunding For example, I, CEOs, and even in Silicon Valley among the VCs themselves there, I'm hearing also much more about people saying that the typical the old VC model is broken. Tell me about that. The Yeah, the background to that is that the the usual route has been for people, startups, early founders to go to the VCs, they'll get their funding, though how large portion already taking in equity by the VCs as they go for each subsequent round. And more and more of the equity is taken up, hence our saying that so ideally, you try and bootstrap as far as as possible.

4:14

And the in the old route. Also, it ended up being the case that founders perhaps only had a few percent left of the company that they created of the idea that they had, and that's a great chain. The other the other side of the coin, also is that there, there have historically also been very little limited opportunities for people to, to get him in to get the opportunity to invest in interesting startups. Even if you think of companies like very successful tech companies like Facebook and others, it's really only a very small club that even had the opportunity to get as an early stage. And therefore, with the new technologies which are coming about the that there are strong

5:10

attempts be made to try and enable

5:16

your Joe public really to get involved. There are regulatory

5:20

frameworks in place. So which, which limits how far one can one can undertake that strategy. So you're telling me before, sorry

5:29

to cut you off. But Facebook, even crowdsourcing was available at that time

5:36

had so few people actually had access to it, maybe no one, the general public still would have had a chance, that'd be a fair thing to say, Well,

5:46

I think that with crowdfunding in particular, it's, it's a very well suited for product based companies that are targeting their products that consumers so for example, you know, if you're doing an educational robot, which is

6:05

this company called Ruby, for example, that is looking to sell educational AI companion robots. So for three to seven year old children, that company would be ideally suited to undertaking a crowdfunding in order to be able to develop its product to to an MVP status.

6:30

But coming back to the Facebook example,

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again, there were there were very few people

6:38

and investors who, who had the opportunity to get in until the company actually went public.

6:50

So it was literally a moat just a handful of people and those those investors or people themselves were already you know, very well can capitalized. So your, your everyday investor, including

7:07

large numbers of so called accredited investors in the US really only see some deals at very late stage. And that's, that's in my opinion, also one of the reasons why crowdfunding has taken off and in particular, actually, more recently, given the technology of these initial coin offerings that has really opened the doors to the general public to get involved at a very early stage and a lot of startup companies interested now for these crowdfunding or these Icos what type of due diligence is done? And I guess before answering that could you talk a little bit about what due diligence is due diligence is essentially being able to check on the company to to see in detail what is it strategy What is it promising how's it planning on executing its strategy who are the team members involved what sort of documentation is in place so it's really if you if you like looking at the nuts and bolts of the company and then being able to decide Yes, this is something that I'd like to invest in on you know, this is something actually which I thought initially was a good idea but having looked in detail actually I don't want to invest in it perhaps. So with Icos

8:25

I think there is room to improve the due diligence process.

8:31

However, even having said that, even in the venture capital model, you'll have different sorts of investors some investors will be experts and they will do detailed due diligence they will know exactly what they're looking for. There are other investors perhaps who would base their decision on what some of those experts investors are finding in the due diligence process and they will then for example, come in as co investors and it's a symbol similar thing actually with the Icos know some some investors will know what the what to look for other investors may be a bit more naive

9:11

in the Icos in particular the information which is generally provided is on a website

9:17

shake. Can you go into detail about what a white paper is and the information that would be on it. So send

9:23

me a white paper is generally going to be the document which startups that are undertaking an Ico show to the potential investors or token bias. And essentially, the initial white papers that were produced were very technical papers demonstrating to the interested investors or buyers of the tokens, what the technology exactly was behind, for example, the blockchain that was being developed over time. And actually that information is involved more into a marketing style of document. But initially, the idea was that experts could even have a look at the white paper and they were invited actually even to see if they could find any flaws in the technology that was being developed interested. So I

10:22

wanted to get access to a white paper, how would I go about doing that

10:27

the white papers are typically listed on the on the company's Ico webpage, they'll typically be a link to see the white paper so they are generally freely accessible,

10:42

interested in what other documents from marketing material does a company have, when they want to do an Ico

10:49

that's a is usually the extent of it. But the the websites that are being developed nowadays are also quite extensive, providing information on what the companies trying to do, who the team members are the the timing, for example of the fundraising, that it's on the undertaking or token sale that it's undertaking so so essentially really the website and the white people great

11:17

Alright, so you don't take up any more your time. Thank you for the Silicon Valley success after hours podcast video

11:26

pleasure speaking with you. Thank you very much.

11:32

Thank you. From all of us at Silicon Valley successes. We hope you found the information presented today useful in your path to success. For further information on accessing the resources in Silicon Valley. You may visit us on the web at Silicon Valley successes. com on Facebook and YouTube. Thank you. And remember, we want to help you in your journey to become the next success.

Shahid intro Silicon Valley Successes

In this segment we get an introduction to our guest on Silicon Valley Successes

Silicon Valley Successes is a Tv show based in Silicon Valley that interviews experts and entrepreneurs to give the world access to the knowledge and experience that is here in Silicon Valley. Our mission is to create opportunities for those who seek them and help you, to become the next “Silicon Valley Success.”

Today show, we interview Shahid Chishty who is a former investment banker at Deutche Bank and Merril Lynch. He has worked with companies at all stages and now finds himself focused on early stage startups, mentoring and advising them on their funding and capital raising strategy.

Hi, thank you for coming today and Silicon Valley successes and could you please give an intro of who you are and a little bit of background? Yes,

me. Thanks for inviting me, Jordan. It's a pleasure to be here.

I actually was born in Africa live that allows 11 years old. Wow. Then move to London and finish off my education over there. I then started working London with the investment banks worked in London and Frankfurt. I've worked actually with the management teams and investors around the world.

And I've been over here in Silicon Valley for the past three years, and I've very much enjoyed actually working with startups. I've been working with some of the accelerators around here as well as a mentor. And in particular, actually, I enjoy mentoring some of the impacts and sustainability startups around here and connecting them with international investors depending on where they are. And I've also enjoyed working we're over the years with investor groups, which are looking at various investments, including startups. Okay,

so I guess the first question let's go to the very very basic…

What is ICO vs Crowdfunding for Startups

This segment of the we talked to Shahid Chisty about what is an ICO (initial coin offering) and how it compares to crowdfunding.

What's your opinion of crowdfunding and Ico for alternative raise to raise funding Ico initial coin offering and crowdfunding one of those platforms? Just a quick 32nd answer. Certainly

our crowdfunding is extremely useful for products especially which was sold to consumers Icos initial coin offerings are a new developments in factor they they have proven extremely successful for some startups that have raised double digit millions even into the billions of dollars it's a very different market vo and generally those startups would need to have some sort of blockchain and perhaps a ai ai machine learning types of applications to be successful. But it's a an area actually which is which is threatening the current securities in industry as a whole and even the VC industry model.

Okay, last question. most valuable advice you could give a founder on fundraising

be determined and don't give up

and shy Could you give everyone just to recap of who you are what you do. Certainly,

I I work with startups mainly in the tech sector. And I work with investor groups around the world as well with the startups actually generally I help them with business development strategic provides strategic advice international growth and scaling I help them with and also fundraising exits m&a activity

so there's there's the areas that I'd like to work together with startups on when's it

too early for a company to approach you and asked to work with you

I'm good really depends on the on the idea and how novel it is. But I I tend to work with companies at the earliest stage, so seed and a round B round rather than more developed companies.

How to evaluate between two Investors for your Startup

This segment of the we talked to Shahid Chisty about what questions a founder should ask an investor before taking their money or deciding between two investors for who’s money to take.

So quick question, if there's two or two people that want to invest in startups company,

what questions should that founder asked those investors if he can only take money from one of them? Very good

question there, there are what's called also strategic investors. So those are the investors that that have detailed knowledge of that particular area. I think the the founders really should consider what they need, as I mentioned before, from the investors, usually it's not only just money, usually, it would be very helpful to find investors, let's say you're an ag tech startup, it would be very helpful. For example, if you could get an investor on board that could also open doors for you for the product that you're developing, or the service that you're developing. And maybe they will even have expertise in certain

technology that you might be developing as well. So the best thing is to find investors who are closely aligned with what the startup is doing, have funds available and willing maybe even to roll up their sleeves a little bit and act

as a as an advisor, mentor as well, when you're saying roll up their sleeves, How valuable is their network to that to that startup that founder rolling up and making introductions? How important is that it's extremely

important, I think,

let's let's stay with the example of Ag tech if if an investor for example. And let's say you're doing a hydroponics, automated hydroponics business, if you find an investor who, for example,

either has himself multiple contacts with, with, with retailers, grocery retailers, for example, that could be an ideal way for you then also to get get your product out to market as well. So, and the same thing applies to any other vertical, if it's Ed Tech, or, you know, then if, if an investor has contacts with either say schooling systems or, for example, with companies that already sell to schools, you know, those would be ideal sorts of investors typically also say FinTech investors, if if the if they have contacts with financial institutions, insurance companies, banks, and so on. Those sort of connections are extremely helpful for startups

quickly.

Biggest mistakes startups make when approaching Investors

In this segment we talked to Shahid Chishty about the biggest mistakes startups make when approaching investors

So with that, what are some of the biggest mistakes you see founders making when they approach investors or just anyone in general,

they a number of startups actually just are not prepared a fully they, you know, the the they don't consider certain information which the investors would want perhaps also they they should

decide beforehand when they're approaching the investors what exactly they're looking for from the investors in why they are approaching the investors at that stage as well. So some founders don't don't think all of that through and then they stumble when talking to investors, what tips or tricks would you give a founder wanting to raise funds, I would say that they have to have a strong idea, a strong team and, and also be driven because it's a hard road. It's also a complicated

check. When once you arrive in Silicon Valley, Silicon Valley

is is getting more and more difficult to to find funds. And even

I understand myself that maybe a few years ago, there were perhaps a few hundred startups nowadays they talk about there being perhaps 10s of thousands of startups in Silicon Valley.

As I mentioned, I also work with accelerators and the statistics among the accelerators show that perhaps 98% even of startups will fail. So it's actually a very significant percentage. Okay.

Recap of ep 2 Silicon Valley Successes Startup raising funds

In this segment we do a recap of what was mentioned in this episode of raising funds for startups Silicon Valley Successes is a Tv show based in Silicon Valley that interviews experts and entrepreneurs to give the world access to the knowledge and experience that is here in Silicon Valley.

So we've talked a lot we've talked about what a fundable company is, we've talked about the different types of investors, angels, family funds, VCs, we've talked about raising funds, and a plan. And some of the biggest mistakes founders make what other information on fund and do you think is very valuable for startup founder to know. I think

fundraising itself also takes a lot of efforts and a lot of time. So if a founder, for example, is a programmer, and he himself is preparing developing the software, he will have to think that he's probably going to be spending at least 50% of his time undertaking fundraising. And therefore, as I mentioned before, it's a it's well worth already developing a once team to include people that he can then rely upon to carry on perhaps the developmental stages of the product or service while he's also working with advisors to approach investors. So I would say founders and startups should have a solid team and they should be well prepared to talk to the investors they should also actually make sure that they spend time looking at which investors they should be approaching. The accelerators for example, will also typically have programs where they will invest in startups as well. The usual structure is that they will invest around 120, $5,000, $25,000

of that might be called back by the accelerators for services provided and the accelerators could take typically around 7% of the equity. So again, it's a matter of the founders and startups judging when is the time to approach investors what's helped to get for example, also in terms of board advisors, other team members, mentors as well which accelerators perhaps to work with because the accelerators have their own specialization. And so all of those detailed considerations which founders and startups should spend a good a good deal of time considering.

Time allotment for startups to raise funding, what is it?

In this segment we talk about how long it takes a startups to raise funding.

approach in all these different groups has to take time and money. That's right, what should be allocated for it? What should a founder be thinking in his head? When I want to raise funds to allocate a month to do it a week to do it a lot longer? Should I allocate so much of my budget for what? What advice? Would you give a startup in their fundraising process and plan?

I I think those are questions actually, or the answers to the to that that question, those questions vary significantly. Generally, though, I would say that a startup is probably going to have to develop the product or service whatever he or she is working on for at least probably six months before they're likely to have what's called a an MVP, what's an MBA an MVP is a market viable product, it could be a service as well.

And generally would, it would probably take about six months at also to get to get some initial external funding in place.

One thing that I would recommend, though, is that founders and startups do try to get some funding reasonably early in the process. Why is that? And the reason I would recommend that actually, is that if you're talking to third parties about your idea, and your product or service, it's very good to see what reactions you're getting. And you can test your idea against these people. And if you can convince people to invest in your product, you're doing a pretty good job.

And so if you like going out to talk to third party persons, and investors in particular, give some sort of validation to what you're doing as well. And there are even founders or serial entrepreneurs who who have significant funds available. However, if they set up a new startup or company, they nevertheless go out to test it and check about its viability with other investors as well. So it's a very good way of trying to get multiple eyes to look at what you're doing and to see whether what you're doing will take off or not.