Changes to the Funding Landscape: A Primer
Fundraising used to be expensive and opaque, according to our panel, but times have definitely changed.
By Jessica Stillman (Editor, Women 2.0)
From the Women 2.0 stage this afternoon Jeff Clavier of SoftTechVC offered a brief primer on the changes over the last five years in the funding landscape. He walked the audience back to 1999-2000, laying out how funding worked back then.
In those years funding was expensive and opaque, and all the cards were held by the VC, he said. “VCs were gatekeepers of innovation. If you couldn’t attract capital, you were done,” Clavier said.
But changes were coming. From 2004-2009, capital efficiency kicked in thanks to open source software and cloud infrastructure, which allow entrepreneurs to build businesses more cheaply. The funding process has become more transparent thanks to VC blogs, standard documents, and new funding options like incubators and super angels, as well as new distribution channels, he added.
More changes further shifted the landscape in the last three years as crowdfunding exploded and more incubators and coworking spaces popped up, as did many micro-VCs. The end result is bootstrapping is now far more possible.
“Entrepreneurs have tons of choices now,” Aileen Lee of Cowboy Ventures agreed, adding that VCs now have to bring something beyond money the table.
Kay Koplovitz pointed out that most top incubators still skew incredibly male, however. Clavier challenged her to provide suggestions as to how to attract more women. They simply don’t apply, he said.
It’s true women don’t apply, Koplovitz conceded, but she went on to say that they just don’t feel comfortable in the environment, comparing it to a smelly locker room. She also cited the fact that women tend to have more responsibilities. We have to figure out a way to make these environments more female-friendly, she said. Ash Fontana of AngelList said the point of AngelList is freeing up information that previously existed in closed networks, which is also disrupting the old “boy’s clubs.”
The conversation then shifted to crowdfunding and regulatory changes. Thanks to the JOBS Act companies can now generally solicit for investors, “which is a big deal,” Fontana said, but entrepreneurs are also now required to verify that investors are accredited. AngelList can do that for you, Fontana noted, while Clavier stressed how important it is to make sure your investors are, in fact, accredited as, if they’re not, they can actually request their money back (that’s particularly problematic, Fontana noted, if you’ve already spent it).
The investors also weighed in on how founders should approach the fundraising process. “Getting seed capital is just like the first inning of the game,” Lee told the audience. “This is a very long journey.” Founders should think long-term, the panel agreed. Think about if your idea is big enough to raise follow-on funding, which is the toughest part of the market. “You have to do a lot of homework before you go out and try to talk to investors,” Clavier stressed. Ask friends and family if your idea is big enough. Then carefully target the right investors using your network.
Also, avoid drawing out the process. “The right way to raise is to do everything at once,” Fontana said.”Don’t wait until you’ve leveraged all your offline connections before you go online. People will know the deal has been shopped, so to speak,” and sense it’s stale. Use all your resources at once.
Jessica Stillman (@entrylevelrebel) is an editor at Women 2.0 and a freelance writer with interests in unconventional career paths, generational differences, and the future of work. She writes a daily column for Inc.com, contributes regularly to Forbes and has blogged for CBS MoneyWatch, GigaOM and Brazen Careerist, among others.