Crowdfunding, Series Seed and Burn Rate as explained by Bob Rice (Views: 4554)
Tue, 28 Aug 2012
Last week, we posted an article going over some basic funding terms. This week, we’ll expand on the topic by talking about a series of videos from Bloomberg called Bob’s daily buzzword.
In Bob’s daily buzzword, Bob Rice, general managing partner with Tangent Capital Partners LLC, explains some of the terminology behind investment decisions. Some of these videos are rather technical and of little interest outside financial circles, but some also present an investor’s perspective on start-ups or SMBs and can therefore be of great interest to entrepreneurs. The three first videos I would like to bring to your attention this week are about Series Seed, Crowd Funding and Burn Rate.
In the Series Seed video, M. Rice does a great job at explaining why the “Series Seed” and its effort to provide free, standardized investment documents has gained so much popularity (hint: it can save you lawyer fees and negotiation time). In this video, M. Rice also compares Series Seeds with Next Round Notes and convertible debt because of their different motivational effects on investors come valuation time. This video is highly recommended if you are considering obtaining equity funding.
In his crowdfunding video, Bob explains the steps involved in crowd funding and the legal responsibilities that funding portals have to assume. He also explains some of the risks involved with this type of funding process. For example: poor accountability can lead to investments in never-to-be-finished products, and crowd funding brings on increased complexity during second round funding because of the large amount of initial, non-professional, investors. Most of his concerns therefore stem from the novelty of this type of investment.
Finally, in the Burn Rate video, M. Rice explains the relationship between the amount of money a start-up is losing every month and how good a business model they have. He does so by explaining that it is acceptable for a start-up to have a negative burn rate as long as it has some customer traction and thus some revenue. He goes as far as saying that with a little bit of traction it is “easier to get investor checks than customer checks” because investors will want to scale your already proven revenue model. Thus, traction and business model validation are potentially more significant investment criteria than burn rate alone.
That is all for this series of buzzwords. Hopefully more entrepreneur related terms will be featured in the segment and we’ll keep you updated if and when they are.
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