In today’s risk averse investing climate, investors are becoming largely more risk averse. This implies more burden of proof is put on aspiring entrepreneurs.
The Current Investment Landscape
According to the US Bureau of Labor Statistics to determine the number of new companies created each year for 94’-15’ (HERE) in contrast to PWC's MoneyTree report on VC investments, on average 0.62% of companies receive equity financing from traditional investors, e.g., Angels and Venture Capitalist.
Turning the Tides
3Si Micro Venture & Holdings (3Si) is trying to change the startup investing landscape. At time we most investors are saying “No” 3Si is here to find a way to say “Yes.” According to the statistics listed above, traditional investors are turning away 99% of startup companies each year. 3Si believes there is a plethora of good ideas that could turn into profitable enterprises within that 99%.
3Si is trying to make a name for ourself by pioneering the “Pre-Seed” stage of startup investing. Since many “seed” rounds are creeping into the $1–2M range, “pre-seed” is starting to get used to describe rounds up to $500k. Manu Kumar gives some good calibration in a recent blog post:
Pre-Seed is the new Seed. (50K - $500K used for building team and initial product/prototype)
Seed is the new Series A. (~$2M used get for building product, establishing product-market fit and early revenue)
Series A is the new Series B. (~6M-$15M used to scale customer acquisition and revenue)
Series B is the new Series C.
Series C/D is the new Mezzanine
Changing the Way Startup Investing Works
3Si is here to offer the initial funds in order for an aspiring entrepreneur to build an Alpha, a Beta and MVP. Namely, 3Si provides access to capital to aspiring entrepreneurs who are at the idea phase of the business lifecycle. 15 years ago, it wasn’t unheard of for a traditional investor to invest in a company based solely on an idea. However, that is not the case anymore. Now traditional investors want to see sales figures only. 3Si believes this approach misses many great ideas.
Serving on the Front Lines of Entrepreneurship
Whether you’re a business developer, a team of engineers, a recent college graduate, a first time entrepreneur, a seasoned professional, a marketing guru/growth hacker or a current business executive, 3Si is here to provide you with the critical early-stage capital your startup needs. We work with those who dare to push the envelope. 3Si aims to be of assistance from day 1 of your great startup idea, and assist your startup through growth and beyond.
Bootstrapping & Finding a Team in the Early Days
It can be very challenging to raise capital until you really have a team established and a company that has a product. So it’s important to learn how to bootstrap. Bootstrapping simply means bettering oneself by one’s own unaided efforts, building something from nothing. The act of “creating something from nothing” cannot be modeled in a Goldman Sachs spreadsheet. It is the magic that entrepreneurs and entrepreneurial engineers have. This is, definitionally, what entrepreneurs do–bring together the resources of land, labor, capital, and entrepreneurial ability to create something of value that is greater than the cost of the sum of inputs and sell it to the marketplace.
In the beginning, do whatever it takes to keep costs low and make as much progress as you can on as little capital as you can. Even if you have to use some personal funds or funds from friends and family, keep your costs to a minimum and get along the path towards success before you go out and raise angel capital or seed investment capital.
Access to Capital from 3Si Explained
3Si has several investment vehicles in order to provide early-stage startups with access to capital. From venture debt, convertible notes, lines of credit (LOC) to equity financing, 3Si is here to handle the hurdle of finding capital.
Venture debt, venture lending or venture leasing is a type of debt financing provided to companies to fund working capital or capital expenses, such as purchasing equipment. Unlike traditional bank lending, venture debt is available to startups and growth companies that do not have positive cash flow or significant assets to use as collateral. Venture debt providers combine their loans with warrants or rights to purchase equity, to compensate for the higher risk of default.
A convertible note is an investment vehicle often used by seed investors investing in startups who wish to delay establishing a valuation for that startup until a later round of funding or milestone. Convertible notes are structured as loans with the intention of converting to equity.
Lines of Credit (LOC)
A line of credit (LOC) is an arrangement between our funders and your startup that establishes a maximum loan balance that our funders will permit the startup to maintain. Your startup can draw down on the line of credit at any time, as long the company does not exceed the maximum set in the agreement set forth by our funders.
The advantage of a line of credit over a regular loan is that interest is not usually charged on the part of the line of credit that is unused, and your startup can draw on the line of credit at any time that the company needs to.
Equity financing is the method of raising capital by selling company stock to investors. In return for the investment, the shareholders receive ownership interests in the company.
How It Works (Example)
In order to grow, a company will face the need for additional capital, which it may try to obtain in one of two ways: debt or equity. Equity financing involves the sale of the company's stock and giving a portion of the ownership of the company to investors in exchange for cash. The proportion of the company that will be sold in an equity financing depends on how much the owner has invested in the company and what that investment is worth at the time of the financing. For example, an entrepreneur who invests $600,000 in the startup of a company will initially own all of the shares of the company.
As the company grows and requires further capital, the entrepreneur may seek an outside investor, such as an angel investor or a venture capitalist, two main sources of early stage equity financing. If, in this example, the investor is willing to pay $400,000 and agrees to a share price of $1.00 (i.e. that the original $600,000 invested is still worth $600,000), then the total capital in the company will be raised to $1,000,000. The entrepreneur will then control 60% of the shares of the company, having sold 40% of the shares of the company to the investor through an equity financing.
I co-founded 3Si with the mission to “Co-Create the future of Entrepreneurship.” I believe that together, we change disrupt how startup investing works. Effectively, our team at 3Si can find an investment vehicle that is appropriate for your startup in order for you to get the critical early-stage funding your startup needs to be successful.
Your startup’s time is NOW. Don’t spend another day working for someone else. Help 3Si make the world a better place through entrepreneurship. Contact myself or one of our representatives today to learn more about how 3Si can find you pre-seed capital. Our team would love to hear from you.