A startup requires more than just a great idea: time, discipline, and most importantly, funding are all required to scale a business. The seven startup funding stages range from pre-seed funding to a stock market launch in the form of an IPO, and each stage requires capital from sources such as individual investors, small loans, venture capital (VC) firms or startup accelerators.
In a conversation hosted by the coworking space Bamboo Detroit on November 30th, panelists from ID Ventures, Fontinalis Partners and ClearCover discussed the challenges and opportunities founders encounter in their funding and growth of the next generation of companies.
The investor perspective
Panelists Patti Glaza, EVP and Managing Director of ID Ventures, and Chris Stallman, Partner at Fontinalis Partners, are both seasoned investors whose venture capital activity focuses on seed-stage technology startups and next-generation mobility startups, respectively.
Glaza, a Michigan Ross MBA ‘00 graduate, said ID Ventures first looks at what a company has executed to date and if the team is adaptable and able to overcome obstacles. She said founders should be “Passionate, but not necessarily blinded by their vision.” Stallman said having a clear identity is also important, noting that while his team cares about revenue and KPIs, “At the end of the day what gets us excited to build a five or ten-year relationship is a company who is starting to find their own identity and where they fit in the ecosystem.”
Trends in venture capital
All panelists agreed that recently, funding rounds are occurring faster and with greater frequency. Investors are increasingly betting on promising startups earlier in the venture cycle, which has boosted valuations to record levels. According to Stallman, “Moving quickly is table stakes for investors these days.” This has caused the median early-stage valuation to double in the past three years, according to Yahoo! Finance.
Gender equality within the industry was also a topic of discussion. Although according to a PitchBook report, companies with female founders are on track to receive the most VC funding in 2021 in a decade, VC investment in female-led firms struggled during the pandemic and underperformed relative to male-founded firms. Advocating for the diversification of VC teams, Glaza said “Our teams have to reflect the communities we want to invest in.”
ABF (Always be fundraising)
For VC firms and entrepreneurs alike, eyes are always on the next source of capital. For Kyle Nakatsuji, Founder and CEO of Clearcover, fundraising has never gotten easier. He calls the process a “Necessary part of the journey but not particularly enjoyable.” To date, Clearcover, an auto insurance company, has issued $330 million in equity and $50 million in debt and grown to over 350 employees. Nakatsuji advised founders to “Spend a lot of time thinking about the person and the individual who is going to write you a check,” commenting that there is a distinction between a business and an investor who wants to give money to the business.
Glaza echoed Nakatsuji’s sentiment: “You never stop fundraising,” she said. She commented that while founders should always be thinking about what relationships they are building with the next round of investors, VC firms also must fundraise too, and are not just sitting on one side of the table.
For founders, she said the fundamental equation is “how to manage your cash to get enough traction and velocity to make yourself interesting enough for the next stage.”