Follow Heather Twitter Facebook
Email Heather Email
Education
May 15, 2018

Time, Talent, Then Treasure: How Milestone-based Fundraising Puts Entrepreneurs First

Sponsored Content provided by Heather McWhorter - Director, UNCW Center for Innovation and Entrepreneurship

This Insights article was contributed by Brendan Collins, Seahawk Innovation Partner and CEO of mimijumi

Friends and family. Angel investors. Incubators. Series A. Convertible preferred stock. Liquidation preference.

The world of startup financing is filled with buzzwords and murky concepts that can be overwhelming and confusing for entrepreneurs. The mainstream business media, with its focus on fundraising, doesn’t help, and entrepreneurs could be forgiven for thinking entrepreneurship is all about raising capital and that successful fundraising equates to a pure victory.

But the reality is not so simple.

Successful traded sector startups need the three Ts of “time, talent and treasure.” In our experience at Seahawk Innovation, “treasure” is the least important of the three Ts. We advise entrepreneurs to follow a milestone-based fundraising model in which they raise only the capital required to achieve the next major milestone.

Entrepreneurs should invest their time and talents to identify a well-considered value proposition and develop a robust business model before thinking about raising money. The longer entrepreneurs can wait—and the more milestones they can achieve—before raising money, the better off they will be.

There are a few reasons why:

  • More milestones achieved = less investor risk = higher valuation. Investors are rightly obsessed with risk and its mitigation. Each achieved milestone (for example, a working prototype or the first paying customer) increases a company’s likelihood of success and lowers the perceived risk for investors. Investors are willing to pay higher prices for investments with lower risk. This means entrepreneurs can raise money at a higher valuation – and retain more of the company equity – if they raise money only after they have achieved major milestones.
  • Using time and talent first almost always lowers the amount of treasure required. Starting a company has been likened to scaling Mount Everest. To help guide climbers up the mountain and avoid costly mistakes, Everest expeditions always employ Sherpas with local knowledge. Similarly, by seeking the assistance of experienced partners, entrepreneurs can avoid mistakes like automating before finding product-market fit or hiring the right person at the wrong time. Avoiding errors and following a more direct path will significantly lower the amount of capital required and allow entrepreneurs to retain more of the upside for themselves.
  • Less capital required = improved definition of success and increased likelihood of exit. For a traded sector startup in which  exit value drives investor returns, the math is easy – the more money an entrepreneur raises, the higher the exit value required to generate an acceptable return for investors. Turning $500,000 of investment into a $5 million exit will generate an outstanding return for the investor and life-changing wealth for the entrepreneur. Furthermore, the universe of companies that can afford to make a $5 million acquisition is relatively broad.
Alternatively, when a company raises $5 million, the entrepreneur would need a minimum of a $5 million exit just to return the investors’ capital! Not only must the entrepreneur now target a $20-25 million exit to satisfy investors, but the universe of companies that can afford to make a $20-25 million acquisition is much smaller.

Further complicating the picture, the entrepreneur most likely sold a significant stake in the company to raise $5 million and as a result may not share much of the exit proceeds. 

By following a milestone-based fundraising model, entrepreneurs can lower the amount of capital they need, retain control of their company, maintain their definition of success, and increase their likelihood of successful exit.

Seahawk Innovation launches, funds and grows innovative, traded-sector businesses solving large, intractable problems like concussion (SportGait), personal safety (Safur), and breastfeeding while returning to work (mimijumi).

Diane Durance, MPA, is director of UNC Wilmington's Center for Innovation and Entrepreneurship (CIE). The CIE is a resource for the start-up and early-stage business community to help diversify the local economy with innovative solutions. For more information, visit www.uncw.edu/cie.

Other Posts from Heather McWhorter

Uncw cie 22
Ico insights

INSIGHTS

SPONSORS' CONTENT
Web awstaffpic2020 1 132245438

The 2024 Luncheon for Literacy featuring Special Guest Jason Mott

Alesha Edison Westbrook - Cape Fear Literacy Council
Untitleddesign5

The Impact of a Growth Mindset

John Monahan - Vistage
Burrus rob headshot 300x300

Spreading Wings for Flight: 2nd Annual Trade Show Highlights the Ingenuity of UNCW Business Students

Robert Burrus - Cameron School of Business - UNC-Wilmington

Trending News

City Club, Event Center On The Market For $7.5 Million

Emma Dill - Apr 16, 2024

Wilmington Tech Company Tapped For Federal Forestry Contract

Audrey Elsberry - Apr 15, 2024

Commercial Real Estate Firm Promotes Adams, Mitchell To Vice President Roles

Staff Reports - Apr 16, 2024

New Hanover Industrial Park To Get $3.3M In Incentives For Expansion, New Jobs

Emma Dill - Apr 15, 2024

Gravette Named Executive Director Of Nir Family YMCA

Staff Reports - Apr 16, 2024

In The Current Issue

TD Bank Brings Trend To Leland

In early March, New Jersey-based TD Bank opened its third Wilmington-area branch in Leland. That’s part of a trend for the bank....


Harjo Leads Indigent Defense

Since Jennifer Harjo opened New Hanover County’s Public Defender’s Office in 2008, she has strived to ensure her clients receive their Const...


Surgery Center Recognized By Orthopedic Organization

Brunswick Surgery Center recently received four certificates of excellence from accreditation organization DNV Healthcare....

Book On Business

The 2024 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2024 Power Breakfast: The Next Season