Hi there, Aleksey Krylov here. Great to be here on November 16, 2023, and I am very grateful for this opportunity to join you and talk a little bit about fundraising for early-stage startups.
Aleksey Krylov Background
So, what qualifies me to be here? Aleksey Krylov. I've been in the industry for the past 20 plus years. In the most recent seven or so years, I served as a strategic CFO for a number of startups, primarily in the life sciences space. I have helped companies go public, raise capital, and engage in mergers and acquisitions. Prior to that, I was an investor with several family offices, investing quite a bit of money and gaining insights into how transactions are done. I started my career in investment banking, raising capital for earlier stage companies all the way through IPOs, and have seen how overall fundraising is done over about 70 transactions. You can find my contact information on LinkedIn; feel free to get in touch.
Let's proceed. A couple of things that I wanted to highlight involve the exits that I am particularly proud of. I had an opportunity to contribute to the reverse merger of Selous into a publicly listed company on NASDAQ and some findings shortly thereafter. Also, I was fortunate enough to start and sell the company called Altium Energy to an international utility, a clean tech company. If we have time, we can talk a little bit about that transaction as well.
Motivation: Passion for Startups
Why am I here? I'm passionate about startups and entrepreneurship. My entire career has always been involved in some form of business—starting, launching, building, and scaling. I truly feel passionate about it. Over the years, I must admit that I have learned by making mistakes. I'd love to contribute to an environment where students like yourself can have a safer space to make mistakes and fail. To the extent that you can learn from some of the mistakes I've made and don't have to repeat them, this is the best teacher at a low cost, the best teacher you can have.
One message I like to convey to folks in the intrapreneurial environment is once you start your business, you own it. You've got to accept everything that has happened to it. Be very smart about what is happening with your business. Be accepting of everything that comes your way—good, bad, and ugly. Learn as much as you can so that you absolutely feel comfortable with what is happening to it.
Corporate Life Cycle
The corporate lifecycle involves stages from startup to IPO, and today, we'll focus on the early stages—pre-seed, seed, series A, and series B rounds, involving self-funding, friends and family, angels, and accelerators.
Organizational Forms for Your Company
Proper organization is crucial at every stage. Initially, consider a sole proprietorship during ideation, progress to an LLC for personal liability separation, and transition to a C Corp for large capital absorption as you attract institutional investors.
Various Funding Instruments for Early Stage Startups
Understand funding instruments like Safe, convertible notes, and priced rounds. Safes are prevalent in various industries, while convertible notes function as debt on the balance sheet. Series A, B, and C involve equity financing with preferred structures. Pre-seed funding can be formal or informal, evolving into more structured rounds like seed and series A. As you grow, attracting institutional investors like VCs becomes relevant.
Early Stage Startup Fundraising
Early-stage fundraising isn't solely about VCs. Avoiding VC, especially if profitability is achievable, is advisable due to the significant ownership dilution and potential misalignment with long-term vision.
Self-funding or bootstrapping involves founders using personal savings, relationships, and sometimes sacrificing retirement funds. Co-founders can be a source of funds, but trust and alignment are critical, documented through legal agreements.
Bartering and prepayments from customers offer alternative funding. Friends and family support with lower interest rates, but managing expectations and documenting investments is crucial.
Crowdfunding platforms like Kickstarter and Republic connect companies with investors, but compliance is essential. Consult with an attorney to ensure compliance with regulations.
Grants from nonprofits and government institutions provide non-dilutive funding. Don't ignore compliance elements; these funds don't take corporate securities as considerations but it does not mean they do not come with no strings attached. Depending on the originating organization, grants may introduce performance, reporting and other requirements. Read the fine print.
Debt options like business loans and equipment loans demand careful evaluation. Very often, they require founders' personal guarantees. I would not automatically assume they are non-recourse loans.
Family Offices, Angels
Angel investors and family offices are alternative sources of funding for early-stage companies. Convertible notes and SAFEs are widely used by these investors. Family offices, associated with high net worth families, offer institutionalized capital, but with more flexibility than VCs.
Venture capital is often the ultimate goal, but it demands discipline, preparation, and persistence. VCs bring sophistication, networks, and scalability potential but require compliance and significant effort. Prioritize documentation, operate in full compliance, and consider bootstrapping for larger equity ownership.
Venture debt may become available to companies after raising capital from VCs, offering an extension of VC money by 10% to 20%. It's essential to have a clear plan to reach a point where the company can either go public, be sold, or achieve cash-flow profitability to repay the debt.
Key takeaways include documentation prioritization, compliance, understanding funding methods, and seeking advice for startup success. Below is the full video of the presentation.
Aleksey Krylov is a serial entrepreneur and a seasoned Chief Financial Officer. He works with small businesses on fundraising, business development and M&A.