Nazim Karimi hosted his mentorship breakfast in Sunnyvale, CA for OPEN SV members. Being a seasoned, serial Silicon Valley entrepreneur, he shared with us nuggets on startups and options in their initial funding. He has guided OPEN SV members with their startups. Nazim's experience encompasses starting, acquiring, managing and exiting several startups.
Nazim told us about his experiences in his various ventures. He initially went on his own by a accepting a mere 10-week consulting contract. That contract turned into a two-year project. He then led several other successful ventures, such as, Penware, Canesta, Maximo, and his latest stealth startup.
The primary ideas of a startup are: to have deep understanding of technology, solve a pain point, and understand the market.
To get started, risk-taking is necessary. For someone wishing to do a startup, he advises to work at a startup to learn and gain experience.
Otherwise, starters with good idea can seek an experienced entrepreneur to lead the team. Not always, innovators are great executives. Experienced entrepreneur can convince investors and help secure funding.
Nazim says it is important to find people who can support the venture, especially co-founder(s) who complements skillset but get along (very) well. Founders end up interacting more with each other than their families on daily basis for years.
Like many other OPEN SV Mentor Breakfast hosts, Nazim also believes that founders must show their commitment and belief in the idea by working full-time on it, and especially before asking VCs money. VCs usually require need a formal (professional) business plan and deliverables. They also look at the team to assess if founders have capability to execute upon business plan and lead a growing team. They let founders manage the business or sometimes suggest bring a member to execute. At that time, founders need to contemplate if the purpose of venture is to make a profitable company or keep the executive title to self. With a good idea, formidable business plan, and experienced members, the team can attract multiple VCs. Almost always, VCs like to move fast on a good idea. After a formal meeting, if a VC assigns "homework" or suggests improvements in business plan more than couple of times, and doesn't invite other partners to meet, it's time to move on. Nazim also suggests not to approach many VCs at at once especially if there is no traction -- as the word ("bad rep") gets around in the valley. The idea, 90-second pitch, story and business plan -- all need to be reviewed and refined.
Nazim expounded, there is no set formula for when and how much a company needs funding. Before approaching Venture Capital and investors, first incorporate the business. Remember how Andy Bechtolsheim wrote a $100,000 check to “Google, Inc.” after first meeting with Sergey Brin and Larry Paige. The only problem was, “Google, Inc.” did not exist when Sergey and Larry approached Bechtolsheim with their idea. It reportedly took them two weeks to deposit the check. That is, VC will only write check to a company.
Before incorporating the business, if there are multiple founders, relative ownership needs to be defined. The equity shares need to be allocated to founders, while leaving portion for investors and team. For a typical series A round of $4 to $6M, the allocation can be: 30% to 50% for the founders, about 20% for the team, and 30% to 50% to the investors. The exact allocation will depend on number of investors interested in funding the startup and the strength of the startup team. Usually, VCs will help select board and may even re-define allocation, of course, depending on negotiations. At that time, a "Term Sheet" will be offered by the VC that defines investment conditions in the company and the allocation of Preferred shares and Common shares.
VCs like to invest in growing market. They want investment to grow and yield back in few years. They'd like to see their "30%" becomes a $100M. Unless the team is experienced, often first-timers are asked about prototypes and even customers. VCs prefer to work with local companies where they can drive and meet personally at short notice, unless it's an international fund.
When discussing expenses, Nazim mentioned law firms can work with a startup "pro bono" until Series A funding. They bill you but defer getting paid until after company gets funded, if ever.
We thanked Nazim for his valuable time and advices, and wished his current venture be more successful than his previous ones.