Gotham Gal & Eric Hippeau Talk Good Money, Bad Money at Springboard

Springboard Enterprises let the media have a closer look last week at what its accelerator for women-led companies has been up to. The annual forum, held in New York, gave 10 startups in digital media and technology the chance to demo their ideas. A pair of high-profile players from the New York investing scene also offered advice on how, when, and whom to raise money with.

Eric Hippeau, partner and managing director with Lerer Ventures, said between the push and pull of investors and founders there can be downsides to raising money. For example, sometimes when businesses are very successful, founders may quibble about selling, though the time is right. “You should sell it because you made a pact with [investors],” he said. “It’s a contract; I’m a venture capitalist and I want my money.”

He also encouraged founders to get the most out of their investors by asking them to make introductions, help with customer acquisition, review the business plan, and use the product themselves. Investors should do more than make promises and then vanish from sight after putting in funding. “If your investors are not using the product, they’re just passive,” Hippeau said. “Just having money is not enough. It’s tough to build a business.”

Understanding how to dole out pieces of the business across funding rounds, he said, is also crucial for entrepreneurs. “Some of the greatest entrepreneurs, once they’re fully funded, if they end up with 10 percent, or if it’s a group and they end up with 20 percent, that’s a lot,” he said. Founders should keep that endgame in mind and then reverse engineer their funding plans over time, Hippeau said.

Lerer Ventures generally invests in teams, not solo founders, he said, unless she or he is a repeat entrepreneur known to the firm. It is also vital to Lerer to see at least one technologist among the founders. “The engineering part needs to be integral and in many cases needs to come first,” Hippeau said. Even media businesses such as Huffington Post and BuzzFeed began with the technology. “They are content and journalistic organizations but we first built the platform and then we added the journalism,” he said.

Angel investor Joanne Wilson, known in the blogging world as Gotham Gal, believes New York’s startup scene is establishing a lasting foundation. “Tumblr being bought by Yahoo is really one of the first large companies we’ve seen have an amazing exit and stay in New York,” she said. “We’re going to see more of that going forward.”

She spoke about the importance of “good” versus “bad” money, warning that companies who struggle to get funding might wind up with dead weight rather than proactive investors who help move the startup forward. “To me, when an investor puts money in your business, they work for you as much as you work for them,” she said.

However the struggle to find the right kind of investors, she said, can be a litmus test for a startup’s real world prospects. “If you can’t get good money, you should really ask, ‘Should I be in this business?’”

Wilson said founders should approach their investors for help when scaling up rather than continue to think like “scrappy entrepreneurs” struggling to fill vital roles. Discussing with investors what the startup needs to move to the next level can make a significant difference, she said.

Founders should be careful, though, about dishing out too much of the company early on, Wilson said, cautioning against selling more than 20 percent in each funding round. In one instance, she met an entrepreneur who, after taking money in her first … Next Page »

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