Richard Holcomb is a serial entrepreneur whose Q+E Software sold for more than $40 million in 1994.
Let’s take a look at the two questions I have been asked most by founders.
The most often asked is “how do I get my new startup funded?” and the second is “how do I get my successful startup sold?”.
After founding and selling my own companies, I’ve had the privilege to work in both early stage venture capital and in the sell-side investment banking world.
I’ve helped companies get that first round of funding and I’ve also helped to get them sold or IPO’d.
The answer to both questions is the same: you have to have what buyers or investors want and they have to want it enough and believe in you enough to write a check. It’s that simple.
The hard part is getting your company to that point.
Investable or salable companies fall into three broad buckets. Those buckets are “interesting”, “impressive” and “incredible."
An interesting company is one that has a product that customers need or want and the ability to get at least some customers to buy it. It may not be unique or have a huge competitive advantage but it meets a need and can attract a growing number of customers. This is the most common company. A founder sees a need, finds some like-minded co-founders, gets some money from friends and family and starts a company. As it grows it is a perfect candidate for a small investment, usually to ramp up sales and marketing, and once it hits a certain revenue or profit or customer metric there are bigger companies in the wings wanting to acquire it.
An impressive company is often just an interesting company that has done a better job of positioning or has created a better “go to market strategy” so that it’s growth rate or market share is higher than those of its competitors. Impressive companies show higher growth and are more competitive. The difference between interesting and impressive usually comes down to better product, positioning, and sales execution. These companies are much easier to fund and vastly easier to exit. I saw an example recently of a company that differentiated its fairly common product by using AI to understand creole languages and positioning the product to be the absolute market leader in developing markets that use those languages. There are lots of competitors who do the same thing in English or Spanish, but no one doing what they did. It was “impressive."
There are the very few incredible companies that are doing something truly unique or are solving an old problem in a radical new way. These are your disruptors and the companies that go on to become unicorns with huge exits and often IPOs. These are the companies that everyone gets excited about investing in that generate huge valuations in venture rounds and when they successfully exit. There are only a few companies that make this bucket and they take lots of capital and have a high failure rate. With massive opportunity comes massive risk and these deals are hard on everyone including the founders, the funders, and the buyers. In the 30 plus deals I’ve been involved with in the last three decades, I only tried to build an incredible company once and its one of the few I lost money on. That doesn’t mean I wouldn’t try again, but the safer play for most first-time founders is to do your best to be interesting or impressive – unless, of course, you are feeling lucky.
