This is the best info that we have found on startup traction and communicating it properly to investors. (Hint: It’s all about the messaging!)
At Tech-Rx, we see many executive summaries from startups and companies looking for funding. Most of them are okay, but few are truly great. The great ones seem to all have similar key points and these key points are……
No one will read your stuff. No one seems to care about your brilliant idea. Why, oh why? …
Unicorns think they’re so great because they’re all mysterious and magical……
Q: What is the difference between the top 5 venture funds and ATR (all the rest)?
A: “That’s where the money is.”
Eight days ago, the fundraising scene was changed when the ban on general solicitation was lifted. For the first time in eighty years, small businesses can now raise funds publicly. Under the new 506c rule, companies who file Form D with the SEC can solicit to the general public. However, no one is restricted to filing Form D if they want to raise money. There is the option of doing it the old fashion way!
Here at Tech-Rx, we are sticking to our time-tested and trusted 506b. There are several reasons we are not jumping the boat, the chief reason being that the alternative is quite onerous. Our first turn-off with Title II of the JOBS Act is that companies are required to take dramatic steps to verify investor accreditation. Investors in 506c deals will need to provide private documents such as tax returns or broker forms to companies they are interested in supporting in order to prove their accredited investor status. I don’t know about you but I try not to make it a habit to release such private information, especially with no guarantee of privacy. (Does anyone else smell unwarranted government intrusion into personal matters?)Our second turnoff is from the standpoint of the company. Companies are required to submit details to the SEC 15 days prior to general solicitation. Do you know anyone who has their presentation materials ready two weeks in advance? It is unheard of!
Lastly, failure to follow strict protocol will result in a one year ban from fundraising. In other words, certain death. A year is a long time in the early stages of a company and a year without funding is even longer.
Amidst all of the craziness of the new rules of engagement, we want to assure you that Tech-Rx is sticking to the traditional methods of fundraising through our accredited investor network.
What are your thoughts on general solicitation? Have you ran across any issues with the new rules?
-Steve Hogan, Managing Partner, Tech-Rx
- Washington, D.C.
- Riverside, CA
- San Antonio, TX
- Baltimore, MD
- Raleigh, NC
- Las Vegas, NV
- Salt Lake City, UT
- Houston, TX
- Seattle, WA
- Jacksonville, FL
“Hoping that the fundraising climate will change before you die is a bad strategy because a dwindling cash balance will make it even more difficult to raise money than it already is, so even in a steady climate, your prospects will dim. You need to figure out how to stop the bleeding, as it is too late to prevent it from starting. Eating s— is horrible, but is far better than suicide.”Herewith, more musings on investors’ appetite for startups in peril from around the Web: Wired’s Ryan Tate found fodder in Horowitz’s column, noting in a piece on the “screams of crushed startups” that Silicon Valley is walking into the business end of the Series A crunch. In recent years angel investing has increased, helping more startups launch. The pool of venture capital available to those companies hasn’t kept pace. Thus situations like the one described on the blog My Startup Has 30 Days to Live, and thus this nugget from Tate’s piece:
“At least one firm, Freestyle Capital, is setting up a bridge program to help early stage startups reach their next investment round, with the bridge investing up to $1 million into sufficiently promising companies so they have more time to find new investors.”That sounds like what Reuters blogger Felix Salmon meant when he took note of a “very, very new market” in “distressed startup opportunities.” Salmon was also writing in response to Horowitz’s column, though the distressed startup he had in mind was the subject of another article, this one by David Segal in the New York Times. That piece was about an entrepreneur who gave up equity in his company in return for help combating a patent troll. Maybe Salmon overstates how new the phenomenon is. This week, PandoDaily’s Erin Griffith profiled a startup investor named Steve Hogan, whose firm, Tech-Rx, sounds a lot like a private equity turnaround shop:
“This isn’t about creating the next Facebook (FB). Once a company reaches him, it has already missed that opportunity. No, the ultimate goal for each situation is to sell the fixed-up companies in two to five years. The fact that this plan includes minting a solid return for his network of angel investors doesn’t hurt the cause, either. If successful, he’ll achieve at three-times to five-times return in that time frame.”