How I believe Iowa can see more startup success
Part I
At local events I’ve been attending throughout this year, I’ve asked attendees this question:
How can we, as a state, increase our risk appetite for startups by 10%, within the next year?
Here are a handful of responses I’ve received:
“The colleges need more programming for practical entrepreneurial lessons.”
“We need better tax structures to attract and retain people here.”
“Iowa’s new state venture fund is a step in the right direction.”
“Founders need access to more capital at earlier stages here.”
I think each of these solutions would/will strengthen the state’s startup community.
But none of these answers help founders immediately. I also know that higher education and government need longer planning cycles. There is little chance they can have something thought of today, implemented tomorrow—or within the next 12 months.
Maybe the answer lies in founders becoming more vocal about what and when we need something. Maybe we need to give more and lead by with examples.
“Whereas the rest of my advice has no basis more reliable
Than my own meandering experience, I will dispense this advice now”
1. I’ve f’d up HUNDREDS of investor pitches. So has every other founder who has raised venture capital. It’s a sample size game.
Why are investors and officials running workshops on how to raise investment here?
I think founders should be the speakers. Everyone else should be the support.
2. I’ve watched months upon months of “negotiating” drag out over company valuations at pre-seed and seed stage—sometimes over as little as a $1m difference.
Why are we so valuation sensitive here?
We should be thinking in terms of Expected Value (EV). If founders are raising a seed round on a Post Money SAFE with a $10m cap, and you believe they become a billion-dollar company 1 in 100 times, that is breakeven EV. Don’t overthink it.
$10m x 100 = $1b
3. We’ve been f’d by investors who snuck in a single sentence that changed everything; pulled a term sheet at the 11th hour; tried to downplay what a liquidation preference is; and have broken verbal commitments to rounds.
Why are so few founders talking about red flags and bad investors here?
A venture fund is a long-term marketplace. Its fiduciary responsibility is to maximize its investors’ $, by deploying it into companies it deems worthy of returning a larger amount of $. Make sure they’re able to truly support you, as they’re trying to maximize their fund’s internal rate of return (IRR). Maybe we founders should be asking what the IRR of a fund is in the first place.