This is the third post of a series named “Enter Silicon Valley“. It is a personal journal written as a how-to guide about how you as an outsider entrepreneur, can get your startup in one of the high tech communities, find funding and grow your company.
A month has passed since i started getting educated about options for growing my startup. I formed a gross view of the startup world locally, in Europe and globally. Now i had to think about what would my next steps be. I asked myself many hard questions, do i have a business model? Do i have enough funds to keep going? Do i have any traction? What about the team? Can i pull this of? Needless to say, when i first posed these questions my straight out answer was ‘NO’ or worse…
I must admit that this period was extremely stressful as any move i made, any decision i was to take would guarantee me nothing and could mean the failure of my startup and dreams. It was yet another time in the history of my project that i felt like this was the end. And like all the other times, it felt real and it felt absolute.
Then, i started working again. Perfecting my presentation, and studying the startup scene even harder while i was finishing up my prototype. I started to gain confidence bit by bit again. Studying the startup scene deeply gave me the realization that staying put would not get me anywhere so i had to make the big decision, stay home and wither or get to a high tech hub and face the impossible. I almost had everything covered, only thing missing was the funds to support the leap. How do you find funds to help you get into a high tech community?
At the time that i had to make the decision not only did i not have any funds, i had already created a small debt to the banks funding myself for the past months (there’s a minus 1 for me, we’ll discover the rest minus 19 points in time [sic]). In order to make any move i needed at least 50k, i knew i had to preserve my equity for funding from professional investors, so off i went to my easily accesible choice, the 3Fs (Friends, Family and Fools).
For weeks i was perplexed with what kind of deal i would offer to my 3Fs. Realizing how dangerous an investment to a startup is (thus the ‘Fools’ part) gives you a big sense of responsibility against your friends and family. I could convince them with any deal i threw to them, convertible loans, high valuations, whatever i wanted, they knew me, trusted me and believed in me.
Respecting that fact i came up with a deal that is only possible for the 3Fs, but would really exclude the ‘Fools’ part. The funding i was seeking was an investment on me, quite literally! I valued myself at a reasonable price and offered a direct percentage of what my net value will be in 5 years from now. Cash in the bank, houses, stock, anything that surmounted to value will be counted in. So in-effect my investors have a piece of me, whatever i do, how many giggs i pull in the next 5 years.
No papers were signed, just a warm handshake. It’s the kind of deal that you cannot afford to sign as it would hamper future deals with future real investors, and generally would create a lot of friction for anything legal i am to sign. Another reason would be that for any lawyer to create such a contract would require a humongous amount of effort and money without ever really being solid enough. And in the end of the day, if my intension was to game my investors i could do it really easily by making funds vanish just before they get accounted for… So, best deal for friends and family, requires huge amounts of trust, don’t try it with anyone that doesn’t know you since your school age.