Roger Chabra

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• If your competitors have received $2mm - $10mm in first round funding while still in the IDEA/Product Beta stage. How can you prove that your valuation is also in that range? Is referring to the competition enough or do you need solid traffic projections to prove it? (Companies in this market have sold for $20-$100mm within 3-4yrs)

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    Stage of company, revenues, # of users, engagement level, IP, patents, unique access to suppliers or channels, pedigree of management team, growth rate of industry, cash on hand, debt, geographic location and other factors can influence how one views valuation. In general, look for companies that are most similar to your own situation on some of the features I mentioned and try to find out what they are/were valued at. Recognize also that valuation in VC is also an artificial number that doesn’t necessarily reflect the true worth of a business. An early-stage VC will want to invest enough $ in order to have a meaningful equity position (typically 15-25%) and will want to leave enough equity for the founders and earlier investors. Just because a VC invests $2m and gets 20% doesn’t necessarily mean that you could sell the business for $10m tomorrow. It just means that’s the number that worked for everyone to have the ownership they needed to be incented and aligned going forward.

• We are a bootstrapped and pre-launch startup. Currently, two co-founders (one tech/one biz dev). We have potential 3 tech people who have expressed interest in join our venture. What kind of equity split would be fair to offer them at this stage?

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    Hard to answer without specifics here. In general, you want to give more equity to people who are more valuable to your business and to match it to their expected tenure with the company. If these tech people are vital to your business both short-term and long-term you need to think about giving them some serious equity. Also you need to weigh what you will pay these people. In general, the closer to market rates you are paying, the less equity that can be justified.

• I am fortunate to have many contacts to VCs and angels. Is there a reason why I should go out of my network to find funding? Risk vs. Benefit?

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    Risk is it will take longer to convince people who don’t know you to invest in your business. Benefit is you may find VC’s or Angels who bring skills or experience that your network may not have.

• What's your take on startups from Y Combinator? What do you think of those that got rejected?

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    Startups from Y Combinator are typically well setup for future VC financing. Meaning they typically have a good initial product, some market validation, a good core foundign team and a network of good advisors/mentors around the company.

    It means nothing to me if a company was rejected by YC. There are a lot of applications every cohort and they are typically looking for a certain profile of company or idea. If you are looking to raise VC money, the key is to set yourself up on the key points I mentioned above – good core team, initial product, market validation and good advisors/mentors/board.

• Forgive my ignorance with this question but this is something that I have been quite curious about. When a venture capital firm lets say backs a start up with money to get them up and running, does the venture capital firm usually have any say as to how that start up should be marketed or run, or does the actual start up usually have all of the control as to how to spend the money from the venture capital firm?

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    The most successful startups I have seen have a collaborative relationship between the VC’s, the management team and other board members or advisory board members. Ultimately, the CEO and management team are responsible for formulating and executing the company’s business plan. At a minimum, the VC’s will typically have the formal ability to signoff on yearly strategic plans and annual budgets. But again the best companies leverage input from qualified people all around the table. Ideally you are taking money from a VC who has experience in the industry you are targeting or the type of company you are building – you should want their input on a continual basis if that is the situation. When things are forced and VC’s are typically “running” the startup, it’s a clear sign that things aren’t functioning well.

• Why is it hard to find investors for Service Companies, I find it interesting that my company makes a substantial amount of income and because it isn't an "Internet/Online Start up", VC's and investors don't seem to be as interested. Any thoughts?

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    Here is a great post by Mark Suster:

    http://techcrunch.com/2011/04/24/what-should-you-do-with-your-crappy-little-services-business/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29

• If your startup could add value to another startup, how would you go about asking if they would be interested in partnering?

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    If you suspect it is a small company with a few employees, reach out to the CEO directly, via LinkedIn, Twitter etc. If the company is larger and has a business development or corporate development person, reach out to that person. If possible get introduced by a mutual connection. A warm intro is always preferable and has a greater chance of you getting the time you need.

• What is the best way to sell a business concept to an investor?

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    Convince but don’t over sell. Be passionate but be genuine.

• What is a good user metric to hit before speaking to VCs?

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    Depends on the business – for a consumer web company, demonstrated users and engagement are important. For an licensed enterprise software company, installed customers, hopefully paying, are good metrics. For a SaaS company, monthly run rate is important. Etc.

• What are your "musts" for pitches from startup companies?

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    Must paint a picture why you are a smart team with a great product going after a market that will be at least a billion dollar in size within a short time frame.