Ten Practical Tips for Raising Capital

Raising capital is one of the most important, stressful, exciting, anxiety-inducing and (hopefully) thrilling process that a young company can go through.  While every situation is different, understanding the process itself (and avoiding common pitfalls) is incredibly helpful in getting successfully funded.  Having learned plenty from guiding young companies through this process, I wanted to share what I’ve learned and offer as much practical advice as I can (with as little legalese as possible).  It goes without saying that this isn’t intended to be fully comprehensive, but I think the points below have some value for anyone going through the process or who thinks they will be raising capital in the future.  Enjoy.

  1. Choose the right structure for your company.  For many companies, this comes down to the timeless (and dull) “LLC vs. C-Corp” debate.  You’ll see countless opinions on the best approach but, at the end of the day, each situation is unique.  While some (but not all) investors prefer to invest in corporations, the LLC structure has some meaningful benefits as well (especially if there is not an immediate plan to raise capital).  Making a misstep at this stage is rarely fatal, but it may create plenty of headaches and hassles down the line.  Talk to someone who understands your goals, your business and can guide you through the process.
  2. Make sure the company owns its Intellectual Property.  If you farmed out development work, make sure the contract clearly spells out that the company owns the work product.   Same goes for founders, early employees or consultants.  Any important IP must be clearly owned by the company or sirens will go off.
  3. Make sure that your house is in order.  In addition to locking down IP, make sure your cap table is clean, you’ve properly structured the relationship among any co-founders, have appropriate vesting schedules in place and there are no potential red flags.  Look at your company through a potential investor’s eyes and clean up anything that needs cleaning.  In addition to making the overall process smoother, you’ll get bonus points for having your sh*t together.
  4. Know your company, your industry, your business plan and your financials.  If someone is taking out their checkbook, they will want to know that you’ve done your homework.  Be prepared.
  5. Be realistic about how long the process takes and plan accordingly.  If you haven’t started prepping to raise capital yet, don’t count on having investor money in the door next month.  It can take months (or longer) for new companies to raise capital especially if they aren’t located in a startup investor hotbed or lack close investor relationships.   Usually the best answer to “When should I start raising capital?” is “Right now and pretty much don’t ever stop.”  An important corollary to this is that a deal isn’t done until there’s a check in your bank account.
  6. Raising capital can feel like a full time job (and it pretty much is).   While raising capital, someone (i.e. you) still needs to keep the day-to-day business running.  This is no small feat considering the number of meetings, pitches, events and presentations it may take to get to your first term sheet.  It’s important to be mentally and emotionally prepared for this grind; as glamorous as the concept of raising capital may seem from afar, it’s typically far from it.  Get ready to work your ass off.
  7. To the extent possible, only deal with accredited investors (i.e. investors who meet certain net worth requirements).  Dealing with non-accredited investors can create a web of disclosure and compliance issues and your company likely lacks the resources to properly address.  That being said, if the choice is between dealing with non-accredited investors and going out of business, common sense dictates that you may have to take non-accredited money.
  8. Teach yourself the basics of startup investments and term sheets.  While an experienced lawyer or adviser can help guide you through the process, you need to know enough to handle yourself in a one-on-one meeting or negotiation with a potential investor.  There are a lot of great resources out there to help you understand term sheet basics.  Use them to understand the more important economic and control terms.  My favorite resource is Venture Deals:  Be Smarter than Your Lawyer and Venture Capitalist by Brad Feld and Jason Mendelson.  Well worth the time investment.  Knowledge is power.
  9. The only real definition of “Valuation” is “whatever number an investor is willing to pay”.  Projections are great, revenue is better but, at the end of the day, the free market decides how much your company is worth.  Unless there are multiple interested parties, it can be difficult to drive a favorable deal with an investor (especially if the company needs money in the short term).   Like an Ebay auction, the most effective way to get a better deal is to have multiple bidders.
  10. While a startup can’t always be super picky about who it raises money from, it’s still incredibly important to find the right “fit”.  Getting the deal done is only the beginning and you will likely be in bed with your investors for a long time.  Like any good relationship, there needs to be trust, communication and mutual respect (and not just dollars).  The right investor can bring more than their checkbook to the table and serve as a valuable resource for the company.  The wrong investor can be a nightmare regardless of the size of their bank account.  Sometimes you need to trust your gut regardless of the business terms.

​At the end of the day, the complicated process boils down to a few simple principles.  Be prepared.  Do your homework.  Work your ass off.  Have your sh*t together.  Surround yourself with the right people including advisers and investors you trust.  Make big things happen.

Best of luck.

 

Ice Bucket Challenges, Robin Williams and Taking Care of Each Other

I went to sleep thinking about the Ice Bucket Challenge and woke up thinking about Robin Williams, the way we sometimes do a great job of taking care of each other and the way we sometimes fall short.

To be clear, this isn’t a criticism of the Ice Bucket Challenge (which is 3000% amazing and I will be doing it tomorrow) or Social Media (which does do a lot of great things).  It’s simply a realization that sometimes there are harder issues that we sometimes let fall through the cracks because they are a little harder to face.

I thought about Robin Williams and about what his last few months, weeks, days and hours must have been like.  I thought about the tough relationship we have mental health and how it can sometimes be such a complex and challenging subject, that it’s easier to avoid altogether.

It’s a bit easier to hide these days.  It’s easier to project an ideal life between Instagram photos of brunches and sunsets.  It’s become a little too easy to feel like an engaged friend by hitting the “like” button.  It makes it a little easier to avoid life’s tougher moments and difficult conversations.

The stats on mental health, depression, suicide, etc. are alarming even before taking into consideration that these incidents are likely drastically underreported because of the stigma that surrounds them.

The truth is that we all have tough + challenging moments that we are scared to share with others for fear of feeling weak or vulnerable.  I’d even argue that if you haven’t ever felt moments of crippling self-doubt or insecurity, you haven’t been pushing yourself hard enough or getting the most out of life.    There’s a reason why they say choosing to be an entrepreneur is like voluntarily signing up to be manic-depressive.  The fact is that those tougher moments aren’t any more a sign of weakness or inadequacy than a broken leg or sinus infection is.  They’re a sign of strength and what makes us, as a species, perfectly flawed and wonderfully vulnerable.

It’s tough opening up when things aren’t great.  It can be even harder to reach out to a friend and offer help when you think he or she might be struggling.  We can make a video of ourselves drenched and freezing without feeling too exposed, but those tougher moment takes a courage and strength that we may only have on our best days.   But at the end of the day, we owe it to the one we care about and the ones we love to be open and vulnerable with each when it matters most.

Don’t be afraid to ask for help.  Don’t be afraid to offer.  Let’s take great care of each other.

4 Years in the Wild (Thank You All)

Today marks the 4th anniversary of my leaving the corporate world and my existence as a W-2 in the rearviewmirror forever.   It feels like that time has gone by in a blink of an eye.

I’ve learned more about business than any MBA program could have taught me.  I’ve learned more about life than any philosophy course could have given me.  I’m incredibly proud that the practice has gone from a kid typing away on a laptop in the basement at 3am to a grown man that can go toe to toe with the bigger firms in the region and not give up an inch.  My first “business plan” was a scrap of paper that just said “Do great shit” on it (and probably happened after a round or two of tequila).  Although it’s grown up a little bit, I’m proud that my practice has kept the same courage and fighting spirit.

Most of all, I feel grateful.

Grateful for all the clients who took a chance on me and let me a part of their success.

Grateful for all the colleagues and great people in Philly that took the time to help me when they had nothing to be gained from it.  I will always remember that.

Grateful for all the friends and family that supported me along the way and never tried to talk any common sense into me.  For those that picked up the phone at 2am when I need to talk things through.  For those who gave me the confidence and strength to keep moving along the road less traveled when it seemed too steep and rocky to travel myself.  I can’t thank you enough; you all have my heart.

Most of all, I’m grateful every day for the opportunity to help others take that same journey.  It’s far from simple, easy or certain, but it’s a journey of great beauty, self-discovery and reward.  Nothing makes me happier than getting to watch others do great things.

Thank you all.

Here’s to many more years of doing great things, breaking the rules and rocking Wu-Tang socks to board meetings.

Rawesquire is forever.

blog_463552_2473188

3 Things I've Learned

I’m far from an expert but I’ve been through the fire of starting my own business from scratch and came out (relatively) unscathed on the other side.  I’m convinced that the only reason that this happened is all the incredible help I’ve gotten along the way.  There were clients who were willing to take a chance on me when my “practice” was just me running around with a laptop and equal parts ambition and determination.  There were mentors who took time out of their busy days and lives to meet for breakfast and pass along the lessons that they learned along their path.  They were friends and family who (thankfully) never tried to talk any sense into me and were supportive every step of the way.  The least I could do is pass along what I’ve been lucky enough to learn by osmosis.


1.  Being “busy” is not being productive and it’s very easy to confuse efforts with results.  When you’re starting a business, it’s easy to find yourself working ALOT.  But it also becomes very easy to confuse being “really busy” with actually getting shit done.  Sometimes the most insidious form of laziness is being “busy”.  Being busy can be an opiate of sorts.  It gives your mind something tangible to focus on and takes your thoughts away from the big picture uncertainty that comes with starting a business.  I remember spending about 8 hours worrying about the format for my blog.  Was it important? Maybe. Kinda.  Could I have spent those 8 hours actually growing my business (or, you know, actually writing blog posts or getting clients)? Absolutely.  But those sorts of things are hard and scary.  So I opted to fill my plate with something that was easy but didn’t really accomplish anything helpful.  I’ve learned to be more honest with myself about what I do with my time in the course of a day.  It’s a general habit of entrepreneurs to boast about the crazy hours they work; I would argue that it’s much more impressive to get a lot of work done in a shorter amount of time.  It took a LONG time for that to sink in for me (especially in a profession that bills by the hour).

2.  Relationships are about QUALITY and not QUANTITY.   Being connected to 1000 people on LinkedIn or having 5,000 friends on Facebook means very little if you don’t have that core of people you can call at 2am and know they will pick up the phone for you every time.  A fellow esquire that I have a tremendous of admiration and respect for told me over lunch (and apologies to him if I’m butchering by paraphrasing): “If you have 10 people in your corner who are fighting for you and truly invested in your success, you’ll be very successful.”  I thought about that a lot.  It sounds simple but it didn’t really strike me until later how rare and powerful it is to have those people rooting for you.  I’ve come to think of it as “You’re better off having 10 advocates, than a 1,000 acquaintances.”  Everyone knows a dozen lawyers, accountants, financial planners, salesmen, designers, social media experts, etc.  It’s easy for people to accumulate acquaintances, but how many advocates do you have?  Those relationships are hard work.  They take time.  They take energy. They take giving without expecting anything in return.  But your advocates will be more valuable to you than all the networking happy hours, business card swaps and social events you could ever attend.  Find your advocates and cherish them.

3.  Expect to succeed and, more importantly, be prepared for it.  Just when my practice was starting to get busy (and I was still working my tail off networking day and night), an experienced entrepreneur and I were discussing building a practice and how people he knew did a great job of building a lot of business but then got too busy to return phone calls, deal with customer issues, etc. and the product suffered.  It wasn’t his intent, but it scared the shit out of me.  I stopped marketing immediately and disappeared for about 3 months.  I spent that time focusing on my current clients and building an infrastructure that I knew would allow me to handle more clients and get much busier when the time was right.  Those 3 months saved my practice.  The takeaway is that whenever you build something (whether a service, a product or a company) you just can’t build just for today; you have to build something that will still be viable and work once things really get off the ground.  Bottom line is that if you’re not expecting success (and planning for it), you probably won’t achieve it.  Spend time from Day 1 planning ahead and investing in the things you’ll need to build something long term.

There are a 1,000 other things I’ve learned along the way and even what I’m written here is a gross oversimplication.  But those three things are what have been most valuable to me.  What it boils down to is simply “Value your time and energy.  Value your relationships, clients and mentors.  Value your vision, your values and your future.”  Do those three things well and everything else should come a little bit easier.

 

A New Direction for RawEsquire

It’s been 21 months since I’ve been a W-2 employee. It’s been a great 21 months. Not great in the sense that everything has been easy or that everything has fallen into place exactly the way I pictured it. Far from it. But it’s been great in the sense that 21 months ago I couldn’t fathom how much I would grow and learn along the way. How much I would learn from every challenge, every mistake and every misstep.

Looking back on it, it was like watching a baby try and walk. Every few steps you slip a bit and fall. I realize now that a baby doesn’t fall because it’s clumsy; it falls because it’s exploring its limits and pushing beyond its bounds. If you don’t fall, you don’t learn to walk and you certainly don’t learn to run. If you never fall, you never get hurt (or have your pride hurt) but you also never really get anywhere all that exciting.

When I first started my legal adventure, I had a list of about 20 boring articles that I was going to write for this blog filled with sound legal advice. I wrote about 10 of them. I never hit “publish” on any of them. I wasn’t excited about it. I wasn’t passionate about what I was saying. It made me think that it was time to take RawEsquire in a new direction.

I love the challenge of waking up every day and building a business. I love helping other people build their businesses. It’s what gets me out of bed at 7am when I was up until 3am drafting contracts the night before. There is an undeniable human element involved. I am emotional about it and it affects me deeply as a human being. It’s real.

In my relatively novice opinion, too much of the business content out there (whether LinkedIn, Twitter, newsletters, etc.) loses the human element somewhere along the way. It’s been scrubbed clean and speaks in a corporate voice. It’s important to be very polished and to constantly give the impression that everything has gone smoothly from Day 1. It’s the equivalent of airbrushing on a magazine cover. It’s not a 100% reflection of reality.

When I came up with the idea for this blog, I wanted it to be about the personal journey of building a legal practice from scratch. Some folks much wiser than myself talked me out of it as “no one wants to see how the sausage gets made” and “no one wants to hear their lawyer talk about how he or she is trying to find more business”. Both of these are great points and I intellectually agree 100%. I have no doubt that being more open, transparent and emotional about the process will cost me potential clients. I also have no doubt that this approach will resonate deeply with some people. I want to work with those people.

I’m lucky enough to have incredible clients. I’m lucky enough to be at a point in my life where I’m 100% secure with who I am as a lawyer and as a person. The past 21 months have been incredible. Full of moments of tremendous excitement. Of anxiety. Of sheer happiness. Of waking up at 4am in a cold sweat and questioning whether I was good enough. Of feeling incredibly proud of what I built. Of meeting amazing people and mentors. Of self-doubt. Of self-worth. Of catharsis and joy. Of finally running.

I have no doubt that the next 21 months will be filled with bigger challenges. Bigger victories. More lessons learned. It won’t be easy. It won’t always be pretty. But it will be successful. And it won’t ever be dull. Stay tuned.

Thanks so much.

RawEsquire