{"id":18348,"date":"2020-06-25T07:00:11","date_gmt":"2020-06-25T14:00:11","guid":{"rendered":"https:\/\/foundersnetwork.com\/?p=18348"},"modified":"2020-08-14T02:27:28","modified_gmt":"2020-08-14T09:27:28","slug":"building-your-capital-stack-with-micah-baldwin","status":"publish","type":"post","link":"https:\/\/foundersnetwork.com\/building-your-capital-stack-with-micah-baldwin\/","title":{"rendered":"Building Your Capital Stack with Micah Baldwin"},"content":{"rendered":"

Not all capital is created equal. Micah Baldwin, member of Grasshopper Bank\u2019s early stage practice and advisor to dozens of startups, explains the pros and cons of different investment streams.<\/span><\/h3>\n

Not all capital is created equal — and founders looking to fundraise need to know the nuances of different capital streams, especially today.\u00a0<\/span><\/p>\n

Micah Baldwin<\/a> has dedicated much of his career to helping to steer startups through their lifecycles. Micah now helps manage the early stage practice at Grasshopper Bank<\/a>, and has advised dozens of founders at incubators like 500Startups, at venture firm Madrona Ventures<\/a>, and at Amazon\u2019s AWS Startup group<\/a>.\u00a0<\/span><\/p>\n\u201cWhen you think of your tech stack, you think about all the pieces that go into the various components of your product that you're launching.\u201d - @micah <\/a><\/span>Share on X<\/a><\/span>\n

\u201cWhen you think of your tech stack, you think about all the pieces that go into the various components of your product that you’re launching, and you want to be able to make decisions that accentuate the growth of your product over time,\u201d he says.<\/span><\/p>\n

The capital stack is no different: Different sources of capital can serve different purposes, and founders should be as intentional as possible in what types of funding they\u2019re seeking. To hear Micah\u2019s full seminar on building your capital stack, <\/span>register<\/a> at Founders Network<\/a>.<\/span>\u00a0<\/span><\/p>\n

\u201cVenture capital is a common route, but it comes with high expectations for growth,\u201d\u00a0Micah explains. \u201cIt\u2019s built on a concept of identifying one big winner out of several potential losers — and for that reason, venture investors tend to prize the potential scale of your startup over the long term.\u201d\u00a0<\/span><\/p>\n

\u201cThere are downsides to raising venture money.\u201d - @micah <\/a><\/span>Share on X<\/a><\/span><\/span><\/p>\n

\u201cThere are downsides to raising venture money,\u201d he adds. \u201cThe scale of your business, the speed of growth — those sorts of things change rapidly. And there’s an expectation that maybe you create a different type of business than the business that you want to build.\u201d<\/span><\/p>\n

Debt is another common avenue for startup founders. If you\u2019re profitable, you\u2019ll likely come into it with a strong position to negotiate terms. If you aren\u2019t, raising debt has the potential to get dicey, depending on the type of bank you\u2019re working with.\u00a0<\/span><\/p>\n

\u201cTraditional banks are more likely to offer something like a standard small business loan,\u201d Micah explains, \u201cwhereas startup banks, like Grasshopper and a number of others, are more likely to offer flexible financing terms.\u201d\u00a0<\/span><\/p>\n\u201cIf you run into problems, it's much easier to solve them when you can talk to somebody who understands what you're doing\u201d - @micah <\/a><\/span>Share on X<\/a><\/span>\n

\u201cYour venture bank will have a tendency to understand founders. You can have a conversation with your banker, who will understand your situation much more clearly than a traditional bank. If you run into problems, it’s much easier to solve them when you can talk to somebody who understands what you’re doing,\u201d he says.\u00a0<\/span><\/p>\n

Your startup\u2019s sales can also influence what types of funding are available to you. If your revenue is significant and growing, some lenders might offer revenue-based financing whereby your accounts receivable is used as leverage for your loan. Other founders may choose to explore small business grants — and the COVID-19 pandemic brought about a spate of government loans and potential grants for small businesses, startups included.\u00a0<\/span><\/p>\n

Over the long run, your customers are an ideal way to finance your startup.<\/span><\/p>\n\u201cThe best way to finance a business is through your own customers.\u201d - @micah <\/a><\/span>Share on X<\/a><\/span>\n

\u201cThe best way to finance a business is through your own customers,\u201d Micah says. \u201cIt’s not just the customer buying the product — a lot of times, if you have a large customer, they will fund your R&D and help figure out some of your product growth.\u201d<\/span><\/p>\n

If you have a large corporate customer — and particularly if there\u2019s a certain feature set they\u2019re interested in — they might be willing to finance some of your development. Startup founders can ask for an investment to build features that would eventually get built anyway.\u00a0<\/span><\/p>\n

\u201cYou can structure your contracts in a way where you get money up front from large companies in order to help fund the growth of your business,\u201d Micah explains.\u00a0<\/span><\/p>\n

Finally, the process of raising capital has changed in COVID-19, and will likely look a bit different for some time.\u00a0<\/span><\/p>\n

Investors are still allocating cash, despite turmoil in the economy. But startup founders should exercise patience to whatever extent possible as investors adjust to new ways of doing business.\u00a0<\/span><\/p>\n\u201cFunds are trying to understand how to operate differently: It doesn't mean that nothing's getting done or can't get done; it's just that everything is taking longer.\u201d - @micah <\/a><\/span>Share on X<\/a><\/span>\n

\u201cFunds are trying to understand how to operate differently: How do they interact with their partners? How do they source new deals and engage with new deals? How do they manage their current portfolio, and get comfortable with due diligence? I think all of those things will shift over time,\u201d Micah says. \u201cIt doesn’t mean that nothing’s getting done or can’t get done; it’s just that everything is taking longer.\u201d<\/span><\/p>\n

Prior to COVID-19, founders may have planned to raise money on a horizon of 12 or 18 months; now, it would be wise to stretch that out longer.\u00a0<\/span><\/p>\n

\u201cEverybody has to get comfortable with how business is being done now,\u201d he adds.\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Not all capital is created equal. Micah Baldwin, member of Grasshopper Bank\u2019s early stage practice and advisor to dozens of startups, explains the pros and cons of different investment streams. … <\/p>\n

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