There’s a bit of a chill in Silicon Valley. The reality is that snagging venture funding is getting much harder.
So what should an entrepreneur do? Well, Sash Sunkara definitely has some actionable advice. Keep in mind that she recently secured $10 million in a Series B funding.
Then again, her company, RackWare, is a top player in the fast-growing market for comprehensive cloud computing management. Oh, and she knows how to hit her numbers and milestones. Just some of her marquee customers include Blue Cross Blue Shield of CA, Coca-Cola, IBM SoftLayer, HBO, Crayola and Zebra.
So what does she recommend for entrepreneurs? Here’s a look:
#1- Be Conservative On The Timeline
The process of venture funding – from the initial contact to getting money in the bank – can easily take more than six months.
“Investors are more careful,” said Sash, “and startups are taking more time to find the right investors.”
A big part of this is the due diligence process. So before you even think about getting funding, you need to make sure your books are in order.
“Our lead investor, Signal Peak Ventures, conducted extensive due diligence,” said Sash. “They actually looked at our product, spoke to a number of customers, from IBM to Blue Shield of California to Zebra Technologies. They analyzed our financials, our software revenue, our talent and patent records. That kind of due diligence can feel grueling. If you’re a startup, it really pays to keep your paperwork organized, because as you grow, the amount of paper you have to track increases exponentially.”
#2 – Don’t Let The Valuation Determine Your Path
Valuations are certainly getting crunched. But this does not mean you should avoid a funding. In fact, whenever there is a tough market, there could be an even bigger advantage when snagging a VC round. It could be a way to set yourself apart from your rivals.
In the case with Sash, she knew that her valuation would not be as attractive – at least when compared to the past several years. But her decision to get funding was about many other important factors, such as scaling the company, upgrading the infrastructure to support major customers, winning more marketshare, improving the branding and getting top-notch talent.
#3 – Be Brutally Honest About Your Company
No doubt, entrepreneurs are definitely optimistic. But this can distort decisions. The fact is that the bar is now much higher when it comes to getting funding. In other words, you need to make a clear-headed assessment of your business.
“If you’re not profitable and don’t have the right metrics, don’t waste your time getting venture funding,” said Sash. “In 2013-2014, startups were told to go out and get as much market share as possible, and spend as much as it took to get there. It was all about growth rather than profit. Nowadays, investors are looking for the right financial metrics.”
But this does not mean you should be glum.
“It’s time to take a step back and rethink your entire business,” said Sash. “Lower costs and focus on the parts of the business where you can solve the biggest problems. Straighten out the business, then go seek funding—not before.”
Tom Taulli (@ttaulli) operates OptionExercise.com, which provides interactive tools and services for employees to maximize the benefits of their stock options.