Capital sourcing is never fun for any executive. It involves spending time and energy away from your company building spreadsheets, exchanging business cards, pitching products, with no guarantee of success. Some of these executives avoid the process altogether rather that pitching hesitant investors on the success of their company. These same executives often decide to raise as much as possible to avoid going through the process again. We believe that capital sourcing is an ongoing process and often occurs when there is a company event that requires additional pools of capital.
The upside of linking an event to a capital sourcing initiative is that investors understand where they investment will be used. Examples of good corporate events include sales and marketing growth, people or technologies that will accelerate revenue or eliminate costs, penetration into new markets or verticals, and new product development.
Issues can arise if a capital sourcing initiative is not linked to a corporate event. First, it becomes “easy money” for the executives to use on unproductive resources like upgrading or remodeling an office or overhead. Second, if things do not go well, there is likelihood that the company will take a hit on valuation increasing the likelihood that the subsequent event becomes a down round.
We believe that capital sourcing is an ongoing process that requires the right amount of investment for the right event. The right amount of capital is determined by a properly developed income with enough detail to understand the financial picture. A sources/uses of cash statements should be developed using the net income of the income statement. The event needs to be productive in nature and needs to be set at the right valuation.
Heritage Ventures: We are Silicon Valley.
For more information about Heritage Ventures and how we share in your risk, please contact either Cameron Ackbury at Cameron@HeritageVentures.com or Chris Wheeler at ChrisWheeler@HeritageVentures.com