Planning Backwards: Ben Rifkin on how you have to know what your company is growing up to be before you start looking for investors.

Kickstarter campaigns, wefunder, and equity crowdfunding—we’ve been talking a lot about new techniques for raising capital over the past few months! This week, I’m switching gears and talking with a colleague who works in a more traditional funding field: venture capitalism.

Ben Rifkin, president of Royal Street Investment and Innovation Center and my mentor for the upcoming OWIC Pitchfest, is visiting this week’s Intrepid Entrepreneur Podcast to share his experience working in venture capital, evaluating new companies and collaborating with them to meet goals.  

Before you even start looking for capital and investors, Ben says you need to know what your end goal is and then think backwards. What kind of company is your startup going to grow up to be? He’s sharing his thoughts on what kind of investments different types of companies might look for. It’s about knowing whose attention you want to catch before you need it.

We’re also discussing how startups can benefit from both crowdfunding and venture investments. Running a strong crowdfunding campaign and getting your product out on time, as promised, can speak volumes to future investors. It says a lot about one of the most important assets a company can have—you, the founders! And these aren’t the only ways you can use successful non-traditional sources of funding to prove your product to traditional investors!

Ben’s also letting us in on what he sees as the difference between tech startups and the outdoor markets, and how this changes the search for investors.

Although crowd funding has given us entrepreneurs some amazing opportunities, this conversation with Ben sheds some really insightful light on what investors look for, how to think about and present the future of your business, and the wide range of options for those of us who might need capital to get to where we want to be.  

Bravery in Business Quote

“Whose radars do we need to be on? You should be able to name those companies before you even go out and look for money.” - Ben Rifkin

(Click to tweet)

Cliff Notes

• Venture capital is the most expensive money a company can take, because you have to give up pieces of your company to get it (equity). With venture, every time you make money you have to give away some of your company.
• For entrepreneurs, the benefit of non-traditional funding (crowd funding, etc.) is that you can access capital without losing control or having to give up a steak in your company.
• Venture capital is not for every company, but it opens pathways to very quick growth and can be lucrative, for the entrepreneur as well as for the acquiring company, in the right scenario.
• Companies with a good Kickstarter or crowdfunding campaign, that raise the money and then deliver the product on time, look really good to venture capitalists, and are more likely to get a strong consideration, Kickstarter can work as a proof of concept.
• Non-traditional funding can also allow companies to get a lot farther along before they start needing or seeking more traditional investments from firms.
• Two pathways to growth:

1. Pour in a lot of money and focus on getting distribution up as fast as possible without worrying about bottom line. This is kind of an older model, and you often end up needing capital to fund operating costs, etc.
2. Establish a track record and grow by connecting with consumers more directly through social media, platforms, etc. Take advantage of these developments for feedback and get to know your consumers.

• Venture capital firm puts a lot of value on founders, since they are usually the CEO, the person who has gotten the company up and running to the point that it’s at, and they are the one who will see it through any changes in the future.
• A founder who was taken the time to get to know their customers, respond to feedback and pays attention to the metrics is a very important factor to venture capitalists.
• Any data an early stage company can gather to test their hypothesis and proof of product helps venture capital firms to know how far along the company is. Look for way to show them that it has been “de-risked”.
• Listening is a very important quality for an entrepreneur to have. Not just listening to an investor or mentor’s advice and following it to the letter, but being open to suggestions and taking them into serious consideration.
• When thinking about sources of capital, it is important to think about the end goal of your business first. What is it trying to grow up to be? And from there, think backwards about what kinds of funding will get it there.  
• Outdoor markets are more competitive than technology markets. More competitive for consumers, and definitely more competitive if your goal is to be acquired by a venture capital firm.
• Some outdoor startups are looking to be more “lifestyle businesses”, meaning profitable, returning money to shareholders and very large. In this case, you probably don’t want to get acquired by a venture capital firm.
• If you are looking to get acquired, you should know the names of the firms you’re interested in and who’s radar it’s important to be on before you even start going out there to look for money.

“The more data that an early stage company can kind of gather, the more that they can test their hypothesis about how to reach consumers, how to sell product. That, for us, helps to de-risk an investment.” - Ben Rifkin

Resources

RoyalStreet.vc

OIWC.org/EventDetails

 

Show Notes: IntrepidEntrepreneur.net/Ben-Rifkin