Realistic Fundraising Structures For Early-Stage Entrepreneurs (S7E6)

What you’ll see this episode:

Get ready for a deep dive into early-stage fundraising, essential for every startup. With this intimidating lesson comes an even more intimidating pop quiz, a first for the daily challenges this season. While some Bloxers are literally unable to put their money where their mouth is, others show us the money and head to the Blox-Off. With some new faces seeing their first pod wins, the leaderboard becomes tighter than ever as the race comes down to the final day. Get ready to cheer on your favorite Bloxer as they face off for the final time in episode 7.

Put your money where your Bloxer is

As we wake up with the Bloxers, we see last night’s pod winners enjoying their special breakfast, and we get introduced to some more contestants’ stories. Afterward, The Bloxers face a right of passage in the game: a class on fundraising. This lesson focuses on the most critical time for fundraising – the early stages. Although many entrepreneurs have misconceptions about what fundraising looks like, the lesson clears away any myths for them. After class, we check in with some of the contestants who admit that the class wasn’t as terrifying as they were preparing for, and we also see them have some major lightbulb moments. 

Next up is something different for the daily challenge: a pop quiz! Along with that, they’ll need to apply the day’s lesson to their business by describing what stage they are at in their business – and as we see, our contestants really run the gamut of stages in their companies. The challenge sees many Bloxers struggling to grasp the concept of resourcing money, but the consultations with the judges provide many opportunities to rectify that along with some clear solutions.

With a few near-perfect scores and one judge announcing that they had never given out so many zeros, it appears that the Blox-Off will be anyone’s game tonight. The pod winners are tasked with role-playing in a fundraising scenario, which not only separates the entrepreneurs from the wantrapreneurs (just kidding!) but also provides some comic relief. After the incredibly hard pitch-on-a-dime scenarios, the rankings are announced, and the leaderboard switches up once again before the final day.

Realistic Fundraising Structures For Early-Stage Entrepreneurs

Today’s lesson discusses realistic fundraising structures for early-stage entrepreneurs. The stages of a business include the aspiring entrepreneur stage, idea stage, building and testing stage, product/market fit stage, growth stage, liquidation stage, and corporation stage. We emphasize the importance of understanding the support available at each stage in a city’s startup ecosystem, but the timing of fundraising is highlighted as more important than the specific individuals or resources involved. Startups often struggle to qualify for angel or venture capital financing, and therefore need to utilize all available financial tools to progress enough to attract such investments.

There are several tools available at the early stages of fundraising, including support from friends and family, crowdsourcing, grants and pitch competitions, traditional accelerators, high-net-worth individuals, and credit cards. There is a need for careful deal structuring, taking into consideration the motivations, timeline, and risk appetite of potential investors. Deal structure tools mentioned include loans, equity, convertible debt, gifting, revenue or profit sharing, and licensing. Examples of deal structures in a friends and family round are provided, highlighting different approaches such as donations, loans, payback starting at breakeven, interest-free arrangements, percentage of sales, and traditional angel investment structures.

The concept of a convertible note is introduced as a tool for valuing a company in its early stages when seeking investment from high-net-worth individuals. It is explained that a convertible note is technically debt but converts to equity at the time of the next financing round. It may include a discount or cap on valuation, making it an attractive option for investors concerned about valuation.

Key Takeaways From This Episode:

1. The stages of business are: Aspiring entrepreneur; Idea stage; Building, testing, tweaking stage; Product/market fit eclipse; Growth stage; Liquidation stage; Corporation.
2. WHEN you are, matters more than WHO or WHAT you are.
3. Every city has an assembly line of assets to help founders through each step. It’s your job to learn what/who supports startups at each of these stages.
4. We must first ask questions to the person or people possibly writing checks: What are their motivations for the company? What are their motivations for their investment? What is their timeline? What is their risk appetite?
5. A convertible note is like debt but not really – it converts to equity at the time of the next financing.