‘How I Built This’ host Guy Raz on insights from some of the world’s most famous entrepreneurs

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Guy Raz-How I Built This
‘How I Built This: The Unexpected Paths to Success from the World’s Most Inspiring Entrepreneurs’
Courtesy of Houghton Mifflin

Not every founder can build a unicorn. Nor should they need to. There’s nothing wrong, for example, with running a small business with a few employees that you bootstrap until you retire and either hand down or sell out. Not only is it not wrong, it’s actually the norm.

The vast majority of American small businesses have fewer than twenty employees (if they have any employees at all) and generate annual revenues somewhere between $300,000 and $2 million. Indeed, most of the entrepreneurs I’ve met over the years aimed at just this kind of success. They weren’t particularly focused on all the things that come with scaling a business, such as limitless growth, total market disruption, and raising loads of professional money.

But if scale is your goal and bank loans and cash ow can’t get you
there, you will, at some point, and yourself engaging with the venture capital world. There are only so many ways to get a resource-intensive business off the ground, after all. This can be a daunting prospect for many entrepreneurs, since venture capital has a reputation as being a closed world that operates in small pockets on both coasts (Silicon Valley and Midtown Manhattan) with unwritten rules and unfamiliar terminology that feels impenetrable to anyone accustomed to speaking in plain, clear language.

There are angels and seed rounds; cap tables and exits; Series A, B, and C dilution and preferred shares; burn rate and run rate. There are VCs and PE guys; FINRA and NASD and the SEC. There’s vesting, investing, and just plain vests. So many vests! It’s enough to make a founder’s head spin. And that’s kind of the point. All these fuzzy, poorly defined terms are left deliberately vague in order to create and maintain opacity, lest you discover the one thing about VCs they don’t want you to know: that they’re human, just like the rest of us. And just like you and me, they aren’t seers or superheroes. In fact, the most successful ones are usually the luckiest ones—lucky to have access to promising businesses early on, and lucky to have access to so much money that they can make a lot of bad bets and still and success in the end.

To put it simply, VCs—even the most experienced ones—get it wrong more than they get it right. I mention this not to sow doubt in your mind, not to scare you, but rather to prepare you. Because this chapter isn’t actually about how to raise professional money; it’s about how to think about raising professional money once you’ve determined that you might need it. It’s about understanding the world of professional money and the mind-set of professional investors, from the perspective of those who’ve been through the process, so that you know what to expect when you walk in the room, for better or for worse.

They did not engage with this investor or his firm ever again, but the exchange was the most egregiously arrogant and dismissive example of a whole set of responses they received from the predominantly male venture capital class.

Like Jenn Hyman who, in 2009, went out to raise a $1.75 million seed round for an online designer dress rental business she called

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Think its a bad time to start a business? Think again. The list of companies created during financial downturns reads like a hit parade of some of the most admired brands: Fedex, Microsoft, Slack, Airbnb, Uber, Hewlett-Packard, even Trader Joes! The advantage these founders had was obvious—there was nowhere to go but up.

Financial crises and economic downturns force founders to be resourceful, efficient, and nimble. And once a fledgling business emerges from that downturn, it becomes more resilient to future setbacks.

This current crisis is a strange one on many levels. On the one hand, it has devastated parts of the economy (travel, leisure, entertainment, restaurants, to name a few) At the same time, it is estimated that there may be as much as trillion dollars in uninvested cash held by venture and private equity firms. Cash that is looking for opportunites. And the competition among investors to find attractive opportunities is fiercer than ever.

What it means for an entrepreneur with a promising idea is that—in some ways—it is easier to find “professional” money to fund your business than at any other time in recent history. But with that money comes strings and sometimes, it’s better to think long and hard about whether those strings are worth the trouble. 

Below is an excerpt from my book How I Built This: The Unexpected Paths to Success from the World’s Most Inspiring Entrepreneurs (Houghton Mifflin), available September 15.

‘How I Built This: The Unexpected Paths to Success from the World’s Most Inspiring Entrepreneurs’Courtesy of Houghton Mifflin

Not every founder can build a unicorn. Nor should they need to. There’s nothing wrong, for example, with running a small business with a few employees that you bootstrap until you retire and either hand down or sell out. Not only is it not wrong, it’s actually the norm.

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The vast majority of American small businesses have fewer than twenty employees (if they have any employees at all) and generate annual revenues somewhere between $300,000 and $2 million. Indeed, most of the entrepreneurs I’ve met over the years aimed at just this kind of success. They weren’t particularly focused on all the things that come with scaling a business, such as limitless growth, total market disruption, and raising loads of professional money.

But if scale is your goal and bank loans and cash ow can’t get you
there, you will, at some point, and yourself engaging with the venture capital world. There are only so many ways to get a resource-intensive business off the ground, after all. This can be a daunting prospect for many entrepreneurs, since venture capital has a reputation as being a closed world that operates in small pockets on both coasts (Silicon Valley and Midtown Manhattan) with unwritten rules and unfamiliar terminology that feels impenetrable to anyone accustomed to speaking in plain, clear language.

There are angels and seed rounds; cap tables and exits; Series A, B, and C dilution and preferred shares; burn rate and run rate. There are VCs and PE guys; FINRA and NASD …read more

Source:: Fortune

      

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