My good friend Dave sent this to me this morning. I laughed so hard I almost went into convulsions.
Because of a nasty knee problem, I haven’t cycled much this year. Even so, I committed to ride in this year’s Pan-Mass Challenge, the largest charitable sporting event in the world and the primary fundraising activity for the Dana Farber Cancer Institute. For the last month, my training has been slow, but steady. Lots of stretching, ice, slow speeds and low mileage. My knee has hung in there with only relatively minor pain. That was, until a couple of days ago.
About five miles into a 30 mile training ride, my right knee gave way. It felt like someone hammered a large nail into the side of my knee. At first it just hurt on the downstroke, but as I struggled to get home, it hurt at all points of the pedal rotation. Eventually, I had to unclip my right shoe and just pedal with my left to get home (it’s not that weird, many cyclists practice pedaling with a single leg to perfect their form – I do it from time to time).
I’ve stayed off the bike for the last couple of days and probably won’t even test the knee again for a couple of more. I’m ignorantly confident that I can manage the situation. I’m going to try to get in to see a doctor before the PMC as well to see what can be done. If I’m going to have surgery on the knee, might as well inject it full of crap that relieves the pain beforehand, right?
On a more positive note, fundraising for the PMC this year has been terrific. Actually, it’s been the donors that have been terrific. Thanks so much to everyone who has expressed support for me and, more importantly, the cause. So far, I have $8,000 committed to support the Jimmy Fund, Dana Farber’s fundraising arm. If you haven’t had the chance to donate, and cancer research is a cause you desire and can afford to get behind, there’s still time (go here).
I often run across early stage companies in a real quandary about how much money to take in their first round of funding. That is, the round just beyond the Ramen noodle eating, avoid starvation round that is usually funded out of your own pocket. The round that really gets things going once you’ve established a team and product viability. The advice they often get – build a spreadsheet outlining fixed and variable costs over the next year or more. Estimate headcount, salaries, rent, capital equipment needs, etc. and, voila, you’ll have your number. That’s fine, of course, but the spreadsheet should be the end result of the planning process, not the process itself. In my experience, there are certain high-level guidelines that should be used to determine how much money should be taken.
Using these, you’ll ultimately have the data you need to plug into a spreadsheet and generate a cash flow estimate – one used for planning AND tracking cash flow – based on the high-level needs of the company and with an eye to future investment rounds.
My thoughts here hold true whether you’re pricing your round or, for the most part, if you’re doing a convertible note. I should also state that this post looks at the question primarily from the entrepreneur’s point of view, although is certainly aligned with the thinking of investors as well. As always, your mileage may vary. This is my opinion and it’s worth exactly what you’re paying to read it . . .
No, it’s not a science. In the end, the most important part is to get the money you need and to get moving. Time is your biggest competition and it works tirelessly 24/7 to kick your ass. Try not to get caught in abstract notions about valuation. Do a sensitivity analysis, it’s likely to be less important than you subjectively think it is. That’s not to say it’s unimportant, but you should think about what the valuation being offered really means in terms of what you take away from the company given various scenarios. Ask yourself what it is you want to achieve, personally. If the valuation doesn’t seem right after that, move on and find someone else to invest. Otherwise, take the money you need and start executing. And don’t forget the spreadsheet. It really is a good tool.