Forums: Discussions for entrepreneurs and small business.

I have a friend who`s also in the startup mode producing a very popular television series. He`s got 3 angels that initially kicked in $30k and he`s been bootstrapping for the past 2 years. The product is exceptional but with the production costs and network buys he`s having a very hard time making ends meet. He`s looking to either dilute shares and give up some of his ownership, or ask the angels for more capitol. Given he`s essentially only completed round 1, I didn`t think it was out of the question for him to do this, but these angels seem reluctant to put in more money, even though this guy`s been making huge concessions at his own personal expense.

Does anyone know where there`s any public information on the typical "funding rounds" for a startup? In other words, how can this guy change the expectations of his angels that it typically takes more than one small round of seed money to get a business off the ground?

Any advice or information would be greatly appreciated.

 

It’s great that he found 3 people to invest in his project.

 

It is not unusual for a startup to raise several rounds of capital in their life. This typically starts with the so called “friends and family” round, followed by a seed round, then moving through the series A,B,etc. rounds.- as needed.

 

As to doing another round of funding – if the project won’t be completed without additional capital, then he’ll have to do something.

 

Regarding the existing investors, what can and/or should be done depends upon the structure of their investment and the terms in the documents  which were used. Without this data, it’s impossible to make any comments specific to his situation.

 

As to changing the expectations of his investors, that may be more challenging – again depending upon the initial agreements.

 

I hope this helps. If your friend want to discuss specifics – send me a private message.

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Are these investors asking for more control and at what outcome?

The investors aren`t asking for more control, but they seem hesitant to put more money in. They don`t seem to be against a dilution, but that`s up in the air at this point. I don`t think these angels really have a sense of the typical funding process and I was trying to see if I could dig up some information he could provide to help school them a bit. I think they were expection to put $30k a piece in and immediately see their return. After 2 years of building a great product and sinking a ton of his own money in while not taking out a dime, he`s at a crucial point where more dollars are required (with a $300k year burn rate.)

There`s tons of potential from corporate advertisers and sponsorships, but to get to a national aring, he really needs to complete another round.

I realize all this is entirely dependant on his situation, company structure, investors position, etc. but I was hoping to find some general information that would help him strategize for the next round with his current angels.

Thanks for the replies.

Ryan

Ryan, what was the original agreement between your friend and his investors? Is there any formal documentation such as a term sheet or stock purchase agreement? Did your friend solicit financing from these angels based on a business plan, project outline or any other type of strategic document? Is he now working off the same capital requirements as he was when he accepted the investment from these investors?

Investors are generally hesitant to commit to additional funding if they believe management has underperformed or failed to achieve certain mission critical milestones.

I think your friend would be well advised to rebuild some confidence in his management skills and the overall potential of the project. If he hasn’t done so already, now would be a good time to develop a strategic business plan that reflects the key drivers of the company, identifies and quantifies needed capital resources, and establishes a time table under which certain milestones are expected to be achieved. This is usually very helpful to get everybody back on the same page and advance your business more efficiently.

As far as exploring additional financing options is concerned, I agree with fellow poster “robertj” that this requires further insight into the deal structure of these seed investments. Please feel free to share the above referenced documents, along with your business plan or project outline, and I will be glad to review them to give additional pointers.



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Jackson Steiner
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