By Tali Tasipori
Globes, Tel Aviv, Israel.
Paybox Ltd. CEO Tal Grinberg
Question: What is the best moment to carry out a seed round, i.e. the first financing from an outside investor, not the founder?”
Answer: “The correct answer is, ‘that depends’. There are many components that build the formula when is the best moment to raise seed financing, and even then, the formula is not scientific, but only guidelines which should be remembered. a) raise when you can; money is the resource with the greatest shortfall in a start-up, so if you can raise money, you should do it. b) this isn’t a game of terms and valuation, as founders have a lot of shares in the company but little money, so it is a good idea to raise money even at less than ideal conditions. Wiser men than I have said that it’s better to have 0.01% of a large company worth a lot money than 100% in a small company that closed because it had no money. c) the timing for raising money depends on the entrepreneurs’ track record, the industry they are in, the performance measures that the company brings to the table, and the awareness momentum. Investors are human, and people are social animals who are exposed to psychological influences. If you can activate these psychological mechanisms and harness them for the company, the timing for raising money becomes better.
Question: Does a personal investment by the founders facilitate a seed round? Does it demonstrate that the investors are serious in their intent?
Answer: “The entrepreneurs should invest 100% of their time and energy in the company. That is often the way to measure their seriousness about the company that they are building. The founders don’t always have money to invest, which is clear to the investors, so the two sides understand that cash equivalent investment is time, talent, energy, and the like.”
Question: How do you pick a financier? Is a particular entity suited for different stages in a company’s development?
Answer: “First, choose what is possible, and assuming that anything is possible, set priorities for the company in line with its strategy. Angels fill an investment role in the earliest stages of a company, and if it reaches later stages, it is quite common to see a venture capital fund lead the financing with more angels joining it. As for the Office of the Chief Scientist and its incubators, that is a question which in most cases, regardless of the investment program, are less related to timing, but the kind of company and technology that it is developing. The more complicated the technology, the more suitable is funding from Office of the Chief Scientist.”
Question: In your opinion, is the specialization of the financier in the company’s niche important?
Answer: “It’s very important. However, the privilege of raising money from an investor with substantial added value is for companies that can be picky because they have provided outstanding measures and/or are serial entrepreneurs.”
Question: How do you decide how much to raise?
Answer: “That’s a chicken and egg question. Does money dictate the targets that it will achieve, or do the targets dictate the money that needs to be raised? There is a balance between desire and reality. It is important to understand the measures needed to for the next financing round in order to be realistic about the ability to reach it with the amount of money that can be raised now.”
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TapReason Ltd. CEO Nimrod Elias
Question: What is the best moment to carry out a seed round, i.e. the first financing from an outside investor, not the founder?
Answer: “Raise money when you can. It is better to avoid embarking on a financing round under pressure. The perfect timing to raise money is when there is momentum around the company, the product, or the entrepreneurs. That is true for every financing round, but true at the seed stage, when you are mainly selling yourself, the team, and the ability to execute. The main thing when generating momentum is the value that you are creating, the need for the solution you are offering, and the arguments supporting why you are going to change the world. I know many stories in which entrepreneurs who I know personally the moment they had the right momentum tied into a coherent story with a narrative of success, built a network of relationships in which they alleviated investors’ fears at every meeting and raised more than they planned. In a seed round, you are measures by your ability to connect the dots, and answer the many concerns of the person or investment firm before you.”
Question: Does a personal investment by the founders facilitate a seed round? Does it demonstrate that the investors are serious in their intent?
Answer: “Such an investment is evidence of their faith. The time invested by the entrepreneurs who work together full-time on the idea, are fully committed to success, and even show a level of execution ability is the important threshold of seriousness.”
Question: How do you pick a financier? Is a particular entity suited for different stages in a company’s development?
Answer: “In most cases, you do not choose who the financing entity it, but maximize the offers you receive. I do not know entrepreneurs who will say no to an offer from a fund. An entrepreneur who looks at his investors, especially in the seed stage, as nothing more than a check, loses the ability to leverage the company. You need an investor with whom you have a good personal relationship. You mustn’t be addicted to money or terms, and it is important to listen to the opinions of other entrepreneurs who received financing from this body. In general, it is important to understand how the different investment entities work. When approaching an angel, the chemistry and his connections in the market are just as important as the size of the check. With funds, the decision-making process, investment strategy and number of investments per year are important information.”
Question: In your opinion, is the specialization of the financier in the company’s niche important?
Answer: “Obviously. An investment from a body that thoroughly understand your company’s market, with a relevant network of ties, familiarity with the expected challenges and potholes will be a power multiple and help you is later financing rounds.”
Question: How do you decide how much to raise?
Answer: “The minimum amount should be enough to help you secure sufficient achievements to reach the next big round. The start-up’s conduct requires the entrepreneur to also manage risks from the perspective of both the current and the next investor. The sensitive point is the safety margin that should be taken to minimize shareholders’ dilution in the next round. A rule of thumb states that the money should be enough for 18 months of activity during which a safety margin should be taken to hire employees (three months in the case of a technology employee), and six months for the follow-on funding process. From that point, the plan should have enough ammunition for the next round within a time range of one year. My personal recommendation is not to play valuation games, but to focus on closing the round at a realistic amount as quickly as possible.”
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Finupp Ltd. CEO Assaf Regev
Question: What is the best moment to carry out a seed round, i.e. the first financing from an outside investor, not the founder?
Answer: “To carry out the first financing round, the company should be able to persuade a seed investor that, which in a predetermined timeframe, the company will reach a target, such as a large financing round or profitability.”
Question: Does a personal investment by the founders facilitate a seed round? Does it demonstrate that the investors are serious in their intent?
Answer: “Obviously, the entrepreneurs’ investment can demonstrate seriousness and faith in the company, but in many cases, the founders invest their time, which can be equivalent to a lot of money. For this purpose, three founders who could earn NIS 30,000 a month forgo any salary for six months up to a total of NIS 500,000. I don’t necessarily think that it’s essential to invest money to prove this. Most investors don’t demand it either.”
Question: How do you pick a financier? Is a particular entity suited for different stages in a company’s development?
Answer: “A good investor is much more than money. That is why it is worthwhile approaching angels in the first stage.”
Question: In your opinion, is the specialization of the financier in the company’s niche important?
Answer: “It is important because an investor is a partner in the company. No investor will get his hands dirty writing code, but it is still worthwhile that they should not be super high level, but have a good understanding of the product architecture. From personal experience, our one meeting with an investor in consumer fintech ventures gave us strong added value that no other investor gave.”
Question: How do you decide how much to raise?
Answer: “Raising money is a long, expensive, and, most of all, an exhausting process. You are trying to sell for a lot of money a product that no one has ever bought before. That is why the simple rule of raising as much money as possible is correct, and the proper balance is set milestones that will be reached within X time and to add a six-month safety margin, which is the average time to raise money.”
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The Grid Ltd. VP marketing Nir Wiener
Question: What is the best moment to carry out a seed round, i.e. the first financing from an outside investor, not the founder?
Answer: “Naturally, the earlier the money arrives, the easier it is to make rapid progress. On the other hand, it is important to create an initial product and test its potential before raising money. If that’s not it, it’s better to understand it quickly.”
Question: Does a personal investment by the founders facilitate a seed round? Does it demonstrate that the investors are serious in their intent?
Answer: “I don’t think that it has a positive effect, at least not in the technology space of the traditional start-up. Founders invest enough if they come from a ‘standard’ economic background. Investors do not expect them to invest money in the venter as well. Money really isn’t the element needed or even acceptable in my view.”
Question: How do you pick a financier? Is a particular entity suited for different stages in a company’s development?
Answer: “There is an accepted fit between different entities and the stages in a venture’s life: angels in the first stage, the Office of the Chief Scientist or incubator, maybe a bit later, venture capitals funds later on.”
Question: In your opinion, is the specialization of the financier in the company’s niche important?
Answer: “Generally speaking yes; for understanding (a common language), knowledge (added value), and the ties that a specialist investor can provide.”
Question: How do you decide how much to raise?
Answer: “That is a very variable issue between the ventures and the circumstances. Bottom line: too much is better than too little. The main considerations are the company’s needs and the use that the money will be put, the company value and the dilution derived from it, including from the perspective of the effect on the venture, but mainly from the viewpoint of future investors, the complexity, and the expected time to raise the money.”
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Nielsen Innovate CEO Esther Barak-Landes
Question: How do you reach investors?
Answer: “There are now databases about Israeli and foreign investors. The best way to reach an investor is when someone recommends you. If it is someone whose opinion is valued or who in the field, that’s even better. I always give priority to recommendations of friends who are active in the field.
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That is why friends are important.”
Question: Which investor is suitable for which stage of a company’s development?
Answer: “The fit is measured by how the investor defines himself. The important thing is for the entrepreneur to check out the investor whom he is going to meet and understand the investor’s fields and stages of investment.”
Question: What emphasis should the issue of valuation be given in the early financing rounds? After all, the value in these stages is very fluid and dynamic.
Answer: “The important thing is to draw up a forward multi-year investment plan and understand the potential for raising money, the potential for income, and to make the calculation about your future situation as an entrepreneur on this basis. In most cases, companies are initially not worth much, and this is the stage at which entrepreneurs are always sensitive to valuation. This can be a mistake. On the other hand, if a future investor sees that that the entrepreneur is too small a stake in the company, he may not invest, because the entrepreneur will have insufficient motivation to fight for success. That is why it is not worthwhile base investments solely on valuation on one hand, but the entrepreneur must make sure that he won’t be diluted to death on the other hand.”
Question: Is it correct to approach the biggest and best known investors?
Answer: “It is important to approach investors who can contribute to the company, who can help you progress far beyond what you could do alone. An investor will become your partner, so his joining the company should be carefully examined, not just for the amount of money that he can bring. I always tell entrepreneurs that they should do as much due diligence on investors as the investors do due diligence on them.”
Question: How should you behave after meeting an investor? Should you wait for him to respond or should you nudge him?
Answer: “That question should be directed to the investor at the end of the meeting. But it is never harmful to be a bit of a nudnik, but be tactful. When the period you set is over, if you haven’t heard from the investor, it does no harm to ask and find out what the deal is. The investor is seeking an active entrepreneur, not a passive one.”
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BRM Capital partner Eran Barkat, a backer of 8200 EISP
Question: How do you reach investors?
Answer: “All ways are acceptable to reach investors. If you personally know an investor, approach him; if a friend knows one ask him to make an introduction. Investors are always happy to meet an entrepreneur who comes to them with a recommendation from someone they know. In short, exploit connections. A Google search and sending a page to an investor is also a method that works. Investors are professionals and they are ready to respond to direct approaches.”
Question: Which investor is suitable for which stage of a company’s development?
Answer: “This issue is undergoing a major change these days. In the past, the division had a much greater dichotomy. Angels are approached in the very early stages of a few hundred thousand dollars, and venture capital funds are approached when a lot more money is needed several million. Today, this has changed somewhat. Funds don’t invest in the very early stages, but in the slightly later stages there are no angels with big money who can continue to provide support even when a few million dollars are at stake.”
Question: What emphasis should the issue of valuation be given in the early financing rounds? After all, the value in these stages is very fluid and dynamic.
Answer: “The valuation is important, but it is just one all the considerations. Don’t forget that, over time, you will make a number of financing rounds. There is a 45-50% dilution in each round, therefore, in most cases, the entrepreneur reaches an exit with a 5-7% stake, so it does not really matter how you get there. In cases where the entrepreneurs fell below this threshold, we try to correct their stakes in the company to create an alignment of interests. You don’t have to be a sucker, but it’s really not that important. More important, especially in the early stages, is to establish a supportive entrepreneur-investor relationship even if the valuation is low.”
Question: Is it correct to approach the biggest and best known investors?
Answer: “It is always better to have a high-quality investor who can make follow-on investments and can contribute to the company’s success. Sometimes, it isn’t worthwhile to take a little money from a big investor, because it’s really pennies to him and he won’t have a problem dropping the venture if it does not really succeed, and then no one else will come in. It’s better to bring in an investor with the money and time that suits his business model.”
Question: How should you behave after meeting an investor? Should you wait for him to respond or should you nudge him?
Answer: “Nudging is never a good thing. I try to give feedback beginning from the end of the first meeting. It is sometimes interesting, but may be premature and I ask them to get back to me after there has been some kind of progress. Sometimes, it isn’t interesting enough for us or the investment is too small, in which case I explain the point from BRM’s perspective and suggest what should be done. Even if I don’t invest in a company, I always offer my perspective as an investor. The first meeting is a discussion. Sometimes it progresses to an investment, and sometimes it doesn’t, but I always try to have the entrepreneur leave me with added value.”
