Raising Startup Capital

Jeffrey  Bussgang

Background Note | HBS Case Collection | February 2014

Raising Startup Capital

Abstract

Entrepreneurs typically focus their full energies on business-building. But raising capital is a core part of building a valuable business. Developing expertise in raising capital is more than a necessary evil, it is a competitive weapon. Master it and you will be in a better position to make your company a massive success. But how do you finance a new venture? In this note, I will try to help answer this question by addressing the following topics:
• Types of funding. The two major types of startup capital are equity funding and debt funding although there are a few hybrid flavors as well.
• Sources of funding. These include venture capital firms, angel investors, crowd-funding, and accelerators/incubators.
• What investors look for. Each source has a different funding process and set of criteria which you need to understand before seeking funding from that source.
• The mechanics of equity funding. Seeking and securing funding involves setting amounts, agreeing to terms, and defining relationships.

Keywords: fund raising; venture capital; venture capital term sheet; venture creation/development; venture investing; venture philanthropy; entrepreneurial finance; entrepreneurial management; entrepreneurs; entrepreneurship; Jumpstart Our Business Startups (JOBS) Act; Non-equity financing; Convertible notes; convertible debt; debt financing; Raising Capital; National Venture Capital Association; venture capital firm compensation; crowdfunding; crowd-funding; Startup; start-up; startup management; Startups; angel investors; angels; accelerator; Venture Capital; Financing and Loans; Entrepreneurship; Business Startups; Financial Services Industry; United States;

Language: English

Format: Print

27 pages

Educators Purchase

Citation:

Bussgang, Jeffrey. "Raising Startup Capital." Harvard Business School Background Note 814-089, February 2014.

This teaching plan serves as a supplement to the cases “Chief: Role for Carolyn Childers,” “Chief: Role for Lindsay Kaplan,” and “Scaling at Chief.”

Case | HBS Case Collection | May 2020

Soofa: Displaying the Right Path?

Jeffrey J. Bussgang, Amy Klopfenstein and Amram Migdal

In November 2019, Sandra Richter, co-founder and CEO of Soofa, a network of advertising-supported digital bulletin boards, must decide between two different fundraising and expansion plans for her company. One plan entails raising $15 million in a Series A round and pursuing an aggressive expansion strategy, while the other represents a more modest $3 million raise to bring the company to operating profitability. Richter had developed the $15 million plan with an executive introduced to her by her venture capital board members with extensive fundraising and startup experience; however, after months of pitching to investors, the aggressive expansion plan had failed to produce a term sheet. Richter must decide whether the rapid expansion is the right course of action for the company as she begins to question whether her business could realistically meet the plan’s projections even if she could secure the financing to fund it. Meanwhile, Soofa’s capital was rapidly dwindling. Richter must raise another round of capital by early 2020, or will be forced to lay off the majority of her staff and close her operations. Should she continue pursuing the aggressive expansion plan, pivot to the more modest plan based on operating profitability, or attempt to pursue both plans simultaneously? And how should she navigate the growing tension on her board given the company’s struggles?

Keywords: Business Ventures; Business Model; Business Plan; Business Startups; Entrepreneurship; Decision Making; Decisions; Ethics; Geography; Geopolitical Units; Finance; Investment; Markets; Market Entry and Exit; Demand and Consumers; Network Effects; Media; Society; Urban Development; Sustainable Cities; Technology; Hardware; Technology Platform; Strategy; Business Strategy; Expansion; Relationships; Partners and Partnerships; Capital; Venture Capital; Advertising Industry; Technology Industry; Media and Broadcasting Industry; North and Central America; United States; Massachusetts; Cambridge;

Citation:

Bussgang, Jeffrey J., Amy Klopfenstein, and Amram Migdal. "Soofa: Displaying the Right Path?" Harvard Business School Case 820-098, May 2020. View Details

Cite View Details Educators

In late 2016, Paris Wallace, the CEO of Ovia Health, and the rest of the company’s co-founders faced a difficult decision about the best way to grow Ovia Health’s revenue. Founded in 2012, Ovia Health specialized in mobile and web applications in the women’s health space. After building a strong user base with its original app (Ovia Fertility, which helped women conceive by tracking ovulation and other factors), the young company launched a second app, Ovia Pregnancy, which helped women have a healthy pregnancy by tracking various health metrics. Ovia Health’s apps were free to use, and most of the company’s revenue came from charging advertisers to host ads on its native advertising platform. Wallace believed that the family benefits market was a promising growth area, but he was not sure of the best way to enter the market. Recently, a top health benefits provider had offered Ovia Health a multi-million-dollar contract, but Wallace wondered whether Ovia Health could create a better family benefits solution by turning down the contract and selling directly to employers’ HR departments. Participants will need to examine how Ovia Health evolved its strategy over time and decide which growth opportunity was the better choice.

Faculty & Research

Raising Startup Capital

Abstract

Citation:

About the Author

More from the Author