Latest Entrepreneurs Reports Shows Keys To Get Funding

Friday, March 27, 2009 4:04PM

By: Dwain Kinghorn

Wilson Sonsini Goodrich & Rosati periodically publishes an entrepreneurs report. The latest report, Private Company Financing Trends, can be downloaded here. This report provides a good overview of current trends in Silicon Valley venture capital.

At SageCreek Partners we periodically meet with a variety of different venture capital firms. While today’s economic climate does create challenges for funding, those companies that have solid business plans and strong management teams are still able to secure funding. There are two common themes that we have heard in our discussions with VC firms this past quarter that are consistent with the above referenced report:

Path to Profitability: A business that is seeking funding needs to be able to clearly show that there is a plan for how the company will become cash flow positive. In today’s market, Venture Capital firms are not likely to invest in businesses that have no defined timeline for growing revenue in a way to reach profitability. The current macroeconomic conditions simply mean that you have to have an even stronger focus on execution both in terms of product creation and go to market success. Good companies are still able to grow their revenue base even in these challenging times. It you want to secure funding now, focus on the essentials and define and deliver on a plan that leads to becoming cash flow positive.

Obtain Enough Capital: As part of the financing process, make sure that there is a conservative estimate on how much cash will be needed to move to a cash flow positive position. Generally speaking you should look to secure enough capital in an A round to move to cash flow positive and not just to reach the next product milestone. The impact of the general economic environment is different from fund to fund. However across all our conversations, it is clear that those looking to invest generally want to see a plan where the one financing event can drive the company to a cash flow positive position. Additional rounds may be of value to accelerate growth or shore up the balance sheet for an IPO run, but that should be done upon a proven business model that can be shown to work at some reasonable scale.