Need Investment Capital For Your Tech Company - Consider A Chief Capital Partner
In working with dozens of early and medium stage tech companies, almost without exception their CEO entrepreneurs lose sleep worrying about having enough capital, and the right capital partners, to survive and take their companies to the next level. The deck is stacked against tech entrepreneurs who at any minute could be disrupted by much larger competitors, and are often consumed with making payroll for the next period. Unfortunately, raising capital takes up an inordinate amount an entrepreneur's time, time that could be better spent running the business. There has to be a better model.
In Seattle you might think that raising capital is not such a problem for entrepreneurs. We have a booming tech sector led by Microsoft and Amazon, large tech companies from Silicon Valley such as Google, Apple and Facebook opening up significant offices in Seattle to take advantage of its large pool of tech talent, and a vibrant millennial population that can fuel the growth of tech companies, among other assets. With that said, tech entrepreneurs find it incredibly difficult to raise money in Seattle, because like so many other communities Seattle has too few angel and early stage venture capital investors. So if Seattle entrepreneurs are having trouble raising money, then it is likely that most tech entrepreneurs outside of Silicon Valley are having the same problem.
It is clear that early stage investors have the upper hand when it comes to investing in tech startups. Imagine you are a CEO raising difficult-to-find capital. You finally get the meeting with an angel investor, or are selected to pitch in front of angel investment network, no easy feat in and of itself. You bring to that meeting all of your excitement, vision, creativity, and planning. Then, after spilling your guts for as long as they will listen, you end up with a "no". And 90% of your meetings end up the same way. The "no" is often couched in different words, like, "when you accomplish xyz come back and see us", or "you have made good progress but we would like to see...". No matter the words it is still a "no".
Recently, however, I have seen a new model that provides much more leverage for entrepreneurs, and evens the playing field a little bit. The model to have a founding "Chief Capital Partner" in addition to founding tech and business entrepreneurs. Think of this person as a kind of in-house investment banker with a stake in the business. This person is tasked with the job of raising capital at various different stages including researching the individual angel investors, family offices, and investment firms, setting up investment meetings, pitching the company, and qualifying investors for interest. The Chief Capital Partner/Officer also helps develop the strategy and pitch deck. In return, the CCP gets warrants or equity in the business.
Now you may be wondering whether this idea came out of my derriere, or has a basis in anything resembling fact. Thanks for asking, but the answer is I am seeing this model more and more. For example, take the case of a wealthy entrepreneur who made a significant amount of money in his own business. He decides he wants to help transform healthcare and starts a company with founding operating partners.
The entrepreneur spends time working with the founding partners on the business plan. He also helps to bring top people onto the board and medical advisory board, recognizable names that have also been successful and provide credibility to the firm. The CCP in this case also has deep contacts with wealthy individuals and investment firms from his past business. He makes an investment in the new company himself, and hits the road to help raise the Seed round of investment. He learns a great deal from early meetings, and refines the pitch. He also brings back knowledge to the other founders of the firm. The technology works, and he identifies interest from major prospective customers. In other words, product-market fit has been achieved. As a result, he immediately goes out to raise the A round followed by a $50mm B round.
Now, some will say that a CCP is not needed because the founding board should be doing this work to help the entrepreneur. In my experience the cases where the founding board is involved at such a level that it relieves the operating founders of their need to focus on capital raising is few and far between. Others will say that most companies shouldn't exist at all because they have not proved product-market fit, or the market is not big enough, or it is just a bad idea. My experience is that good entrepreneurs adapt, and have the tenacity to persevere against great odds. And if an entrepreneur has already proved himself like the one above, and backs a business with his expertise and contacts there is a much better chance of success.
So this is the idea and model I am seeing more often. As more Baby Boomers retire, this is a good way to stay involved and bring experience and contacts to new ventures as well. With that said, I would very much like to hear your thoughts and insights about it. Please feel free to comment positively or negatively. Thank you.