Here are more of their experiences and insights on getting
startups funded.
Lower Infrastructure Costs
With the growing availability of cloud-based computing and
services, fewer startups need to spend their money on hardware. “In the early
days of Spotify (2006-07),” recalls Enh, “we spent weeks looking at data
centers and negotiating with hardware vendors, then finally co-locating. When
we started Wrapp five years later, we didn’t need to buy any infrastructure.
Higher and higher layers of business service are available in the cloud, so you
get more and more stuff without having to buy or do it yourself.”
This has changed seed funding in particular, since startups
can lower their initial costs and get products out faster. And for later
rounds, notes Reddy, cloud resources make it easier to put up a prototype to
show investors.
Changing the VC-entrepreneur balance
Those lower costs can affect the VC-entrepreneur balance,
Enh believes. “Large, traditional VCs with hundreds of millions of dollars need
a portfolio of about 200 companies to do angel investment properly. Anything
that lowers the cost of starting a business may present VCs with the problem of
keeping their money active.”
Besides VCs, it’s helpful for the ecosystem to have angels
and accelerators willing to invest, says Fears, especially in Latin America
where there are fewer institutional investors. “There’s also a growing
community of 25- to 30-year-olds,” he adds, “who have had a couple of
successful exits and want to invest $50-75,000 in first-time entrepreneurs.
Those investors add a lot of value because they are willing to coach and
mentor.”
Terms vs. valuation
In the offer, what’s more important for the entrepreneur to
examine: terms or valuation?
Of course, the press will focus more on the valuation, but
the terms are your agreement with the investors and you’ll have to live with it
(and them) a long time.
