Trying to get VC funding is a lot like dating, Michelle Madhok says. "No one
ever rejects you. After you go on a certain number of 'dates,' you start to
realize they aren't going to commit."
Madhok is the founder of New York-based
SheFinds.com and
MomFinds.com, online
publications that help women shop the web for the latest beauty and style finds.
She bootstrapped SheFinds.com in 2004 with $250 and
followed up with MomFinds.com for about $600. She has one full-time editor, one part-time
editor and 20 freelancers. "We've done great; we're making half a million in
revenue a year," she says. "But to grow, we need energy behind us."
Madhok wants $1.5 million to improve both sites and expand into other areas,
beginning with BrideFinds.com. Her goal is to take the concept to $30
million in annual revenue and then sell it. She is exploring angel funding as
well as venture capital, but believes that venture capital will bring her
the connections she needs to take her company to the next level.
Madhok has "dated" four VC firms so far. "With most of these, we go four or five
times. We go for breakfast or drinks; it's always an interesting conversation."
However, she says, many men don't understand her concept. "Men are focused on
widgets and technology," she says. "One investor asked me, 'What's the patented
technology?' Women, on the other hand, 'get it in their gut.' "
Louise Wannier is CEO and co-founder of Pasadena-based
MyShape, an online fashion
retailer that does have patent-pending technology and uses it to match clothing to a woman's
measurements, body shape, and fashion and fit preferences. Like Madhok, however, she says it's been difficult convincing men that her site is a
worthwhile investment. Yet she raised $2.2 million in angel capital to start MyShape. And last summer, she received Series B venture
capital funding from Draper Fisher
Jurvetson. Her angel and VC funding total about $10 million.
Wannier credits several invaluable contacts for her success. "You have to be tireless about getting to the people who know what you need
to know," Wannier says. "I think you have to communicate with everyone."
In
addition, she's a CPA with a financial background and a serial
entrepreneur with a proven track record at Gemstar, Enfish and the Swedish
company Skillware/Interaktiv Video.
Walking Away
Maryssa D'Angelo has given up on securing funding. D'Angelo designed the
Magic Sheet, which removes grime from cookware without scrubbing. A year ago,
the Southern Californian put her business plan in place, got her team together
and started researching VC companies on behalf of her firm,
Magic Products LLC.
What she learned is that VC firms are reluctant to fund first-stage companies.
Instead, she got interest from more than one scammer, who requested money upfront. She and a team member even flew to Florida to talk with a company that
expressed interest in her product. "We met with them at noon," she says. "We sat
down, and they started explaining where we had to pay." D'Angelo walked out of
the session and flew home.
She is now making headway on her own. "I've got product made and packaged
without one dime from investors," she says. Her manufacturing firm and her logo designer
have said, "When you get paid, we'll get paid." And that might not be far off.
D'Angelo says she's working out deals with multiple bakeries and has her sights
set on additional commercial and consumer outlets.
Harleen Kahlon has received angel funding for
DamselsInSuccess.com, a New York-based site that features content, a social
network and a job board for professional women. Now she's trying to energize her
company with venture funding.
Kahlon believes a lot of venture capitalists see an opportunity in the
women's space on the internet, but they don't understand it. She says, "The site I've built has three components: a job board, a social network
and original content. The content is there because it helps women connect with
the site, and it brings them back. VCs say, 'get rid of the content.' " Kahlon
walked away from one offer of $500,000. "I was close to closing," she says, "but
they were frustrated that I wanted to spend $3,000 a month on content."
Kahlon has learned much in the past few months. "My financials are a lot more
detailed. I am better at defending my assumptions. I have multiple scenarios
depending on the size of the investment. Ups and down aside, I've learned so
much about my company from going through this process," she says.
Thinking Big
Anutza Bellissimo, founder of the
Stress & Anger Management
Institute in Hermosa Beach, Calif., believes she's learned the secret of
pitching her business to venture capitalists. SAMI offers classes and employee training programs to help people deal with their stress and anger. Looking back at the presentations
she's made to date, she realized her vision wasn't big enough.
She's since been expanding her vision and thinks the answer is licensing
the curriculum, program, name and intellectual property. "I've spent the past
four years developing this curriculum. Now I can take it and move it in a big
way," she says. She envisions what she calls "SAMI stations" that offer her curriculum at learning centers
nationwide. In addition, she says, corporations can benefit from including
stress and anger management in their corporate wellness programs.
Amy Rees Anderson was in her 20s when she raised $2 million in venture
capital 10 years ago. "I got really lucky," she says. "I was too naïve to know
better." Today, as CEO of
MediConnect Global, Anderson has raised more than $50 million in capital and
teaches courses on entrepreneurship at several universities.
"The biggest thing entrepreneurs have to do is understand what their
investors need." Anderson advises entrepreneurs to know how a VC works, whose
money is being invested and how long investors are willing to wait for a return
on their investment--usually two to three years, Anderson says.
She offers the following advice to women seeking VC funding:
Research the industry you're in. What's your market, how big is it,
who are your big competitors--and what makes you different from the competition?
Be able to discuss every aspect of your business. A woman who wants to
raise money also needs a detailed understanding of every aspect of her business
so that she is comfortable talking about it.
Build a financial model. A financial model is instrumental in
obtaining funding, says Anderson. "I had a mentor who sat me down and built a
financial model for me. He asked me, 'How many days does it take to do this? How
many people does it take to do that?' " Building on the answers to those
questions, he was able to predict the company's future several years down the
line, a big plus in a meeting with venture capitalists.
Get an introduction. A good attorney can provide introductions to VC
firms. Or you can find a company that already has funding. Talk to the CEO and
ask whether he or she will give you an introduction to the VC firm.
Research the company. Before you make a presentation, research the
company you're considering. Read about the partners and find out whether they
are likely to be interested in your venture.
Choose the right VC. If you do accept funding, make sure that the
money comes with additional value. Ask yourself, Will the people on my board be
good contacts? What do they bring to the table besides cash? Will they help me
hire people and find good legal counsel? Will they offer knowledge, advice and
mentoring?
Think twice before you consider venture capital. Consider
bootstrapping, angel funds or private individuals first, because venture
capitalists will take 30 percent to 35 percent of your company. "Once you raise
capital, whether or not you still own a majority of the company, you work for
them." And don't ignore liquidation preferences. A venture capitalist who
stipulates two times liquidation preference would be entitled to receive two
times his or her investment before remaining funds are disbursed.