32. Capital Outside of the Valley (Morris Wheeler, Mike Belsito)

Due Diligence Podcast DownloadNick Moran Angel List

Morris Wheeler & Mike Belsito join Nick on The Full Ratchet to discuss raising & investing capital outside of the Valley, including:

  • Morris Wheeler Capital Outside of Silicon ValleyWhat are the key challenges to raising outside of the valley?
  • Does Crowdfunding for equity lower the barriers to raising for smaller market startups
  • What advice would you have for founders regarding crowdfunding?
  • What are the most common missteps that you see startups make, when attempting to raise capital?
  • Regardless of location, what are theMike Belsito Capital outside silicon valley three roles that make for the ideal team at the seed stage?
  • What are some of the things that you’ve learned through the fundraising and investing process that has was different than your initial assumptions or mindset?

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Guest Links:

Key Takeaways:


1- The multi-tranched, rolling seed round is becoming the norm


Morris gave the example of raising a round before an accelerator, after an accelerator and a third when you’re halfway to your Series A milestones.  This seems to have become the rule as opposed to the exception in many startup ecosystems.  I wish I had a concrete theory as to why this is the case.  I don’t, and will research it further.  But what we do know is that this is the environment we’re in.  We’ve talked previously on Episode 12 about the Rolling Close and the Bridge to Nowhere.  We won’t rehash that here but we should acknowledge Morris’ insights.  His initial placement will often be $50k, yet he’s trying to increase that position to $250k.  Not throughout the A, B an C rounds but all $250k within the seed round.  I haven’t heard an investor illustrate this strategy before but it’s a pretty interesting one.  Even within a round or Stage, which has a fuzzy definition to begin with, he is looking for that traction and progress to milestones and releases more of the $250k as things progress.  In a way, like Steve Blank’s advice on early-stage evaluation, one must monitor a startup’s progress before a huge capital infusion.  A fixed point in time says little about progress.


2- The Crowd-funding platform as an Information Tool


Most of us think of these platforms as places to list your startup and fundraise and/or syndicate your round, but it is also a great place for startup founders to do some recon on investors.  They can get some information from afar on the types of sectors and business models that different investors invest in.  And they can also reach out to other entrepreneurs that have been funded by a certain investor to get a better sense for that investors style and approach.  Mike also mentioned that some of those entrepreneur relationships started through a platform turned into investor intros.


3- The Hacker, the Hipster and The Suit


How could not include this as a key takeaway.  It’s a great sound byte and more than that it’s a great philosophy.  We’ve heard many investors talk about the necessity of a builder and a seller.  I like Morris’ take that you need the builder ie. the Technical creator or coder but also that you need a design person.  Someone that understands User Interface and product design.  Can take customer requirements and translate that into a product offering.  It’s not a great surprise that the most valuable company in the world is Apple, one that has intensely focused on industrial design and user interface as a differentiator.  This is often the bridge between great technology being used by highly technical people and great technology being used by the masses.  And finally, Morris’ “suit” is a person that understands the business side of things.  They can sell, they can set price, they can structure the business model appropriately.
And the final point on this is that these three roles don’t have to be played by three different people.  And in fact, there is typically one individual wearing two of the hats, although it’s very unusual to find one who wears all three.


Tip of the Week:    Capital is a Means, Not an End