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4 Keys to Become "Venture-Ready"

Monday, August 10, 2009
Posted by Lynn-Ann Gries

JumpStart Ventures exists to serve entrepreneurs with high growth business ideas located in Northeast Ohio who want to raise additional growth capital. And while entrepreneurs are our primary "customers", I like to think that we have two additional types of "customers" as well:

  1. Investors (angels, VCs and other sources of risk capital), and
  2. Funders (primarily government entities and foundations). 
Part of my responsibilities is communicating (along with our talented Vice President of External Finance, Kerri Breen) with our investor customers about all of the terrific investment opportunities available here in Northeast Ohio. To this end, we have taken numerous marketing trips where we meet with investors, introduce JumpStart, describe its focus on venture development and, hopefully, generate interest in our portfolio of high growth companies. As part of our "pitch" to these investors we tell them about the non-financial assistance that our team provides in addition to the cash we invest. Basically we describe all the "stuff" we do to help the entrepreneurs and their companies get "venture-ready" which is usually followed up by comments like "Really?" or "That's terrific" or "Wow, very helpful." We highlight this fact because it sets JumpStart Ventures apart as a source of high quality deal flow, a group that "gets it" and understands what VCs want. So, just what does it mean to get a company (and an entrepreneur) "venture-ready?" We like to think of it as an on-going boot camp of sorts, where we try to de-mystify the world of venture capital for the entrepreneur and help them to understand a VC's motivations so they can properly navigate the waters. Some of the things we encourage entrepreneurs/companies to do in order to set themselves up for a venture investment are as follows:
  1. Instill proper governance. Set up a proper board of directors (generally 3 or 5 people) that contains industry and business experts. Give the board the right to hire/fire the CEO.
  2. Set up the proper legal structure. This will most likely be a C-Corp although some angels may invest in an LLC. Make sure all of your company's legal and financial documents are complete and easily accessible.
  3. Understand your company's "capitalization table" (i.e. the spreadsheet that shows ownership percentages), what "dilution" means (i.e. when someone buys stock in your company, your ownership percentage will drop) and all about "preference stacks" (i.e. who gets paid out first in the event of a sale).
  4. Understand an investor's motives. VCs are in business to generate returns for investors. Angels are in business to generate returns for themselves. Both want to see a return on their investment at some future date (generally starting in year seven post-investment). So, when they start bugging you in year five or six about selling the business, they are not being annoying or greedy -- they are just doing their job.
Preparing entrepreneurs to successfully raise outside capital is a big part of what we do and why we exist. We hope that our entrepreneur customers appreciate the education and that our investor customers see us as a trusted source of high quality, "venture-ready" deals. Lynn-Ann Gries is the Chief Investment Officer of JumpStart Ventures. She previously worked in the investment banking departments at both McDonald Investments and Smith Barney (now part of Citigroup), and in the sales and trading area at Morgan Stanley. She received her MBA from New York University's Stern School of Business and her BA in Economics from Smith College. She currently serves on the board of the Fund for the Future of Shaker Heights, the Great Lakes Science Center and Summer on the Cuyahoga (SOTC).

Tags: angel investmentcap tablecapitalentrepreneurfounder dilutiongovernmenthelp for entrepreneursinvestorJumpStart Ventureslegal structureliquidation preferencesNortheast Ohioportfolioventure capitalventure developmentventure-ready

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