Monday, 22 July 2019

High-growth entrepreneurs often envision a day when they receive a term sheet with the offer of a large sum of money.

In that dream, they happily sign the paper and watch as millions of dollars are wired to their company's account within hours.

This vision is inspired by stories of dozens of recently funded companies and buyouts in the billions (i.e. Unilever buying Dollar Shave Club for $1 billion). The headlines make it seem as though every entrepreneur with a decent idea can secure outside funding with little effort.

The reality, of course, is a bit different. Only a percentage of companies seeking funding actually secure it, and sometimes even if they do, it can be an uphill battle. Ryan Costello knows what it's like to, as he calls it, “grind it out" to secure outside investment. As co-founder of Santa Monica, California-based Event Farm, an event marketing software business, he has raised $4.1 million for his company of 40 employees, but it hasn't been easy.

Accidentally starting a business

Rewind the clock back to the early 2000s when Costello was a Georgetown University computer science grad working as a lobbyist in Washington, D.C. “I wasn't a talented engineer, so I landed in politics for the first five years after school," he says.

He befriended people at a music nonprofit in need of financial help and went to Capitol Hill to raise money. When door-to-door asks didn't work, he decided to throw a fund- raising event, which was so successful it became an annual affair for the next 10 years. During that time, he and his Event Farm co-founder, Todd Cornett, created a software program to streamline the event process. Big sponsors wanted specific people to attend, so when tickets were sold to those people, Costello and Cornett's software would guarantee tickets were non-transferrable (called “restricted access" in the industry).

Over time, the pair grew their event business and perfected the corresponding software to such a degree that by 2011, some of their big vendors wanted to use the same software. That is how Event Farm was born.

Problems you want to have

Unlike a huge majority of startups that launch without customers, Event Farm had an impressive docket of clients on Day One. This helped Costello and his team net their first round of funding: $500,000 from two angel investors. While exciting, it required Event Farm to establish a valuation for a company that had just launched.

“When you take money for the first time, you have to price the business," says Costello. “People have to get together and decide the value of your company, which means that you are making a line in the sand. If you fast-forward a year, you might want it to be a different valuation, but that line in the sand puts boundaries on what is possible."

That proverbial line created some problems later on when the team needed more funding. Even so, he and his team powered through. Costello recommends doing your research ahead of valuation and talking with experts in the field to make sure you are primed for future investment. Over the next few years, Costello's business secured another $3.6 million and today business is doing well.

What would Costello do differently if he could go back in time?

Lesson #1: He would have prepared more fully for investor meetings. “

I'm a guy that shoots from the hip," he says. “I can sell very well and can sometimes be overconfident. Over time, I realized that investors are looking at 25 all-stars every day. I would have practiced more, known who I was talking to, and done the prep work to answer hard questions."

Lesson #2: He wouldn't have taken things personally.

Costello heard “no" so many times that he started to worry about the market on the whole. But looking back, he realizes that “every pitch is a new pitch and just because you got 75 nos beforehand doesn't mean this one won't be a yes," he says. “I recommend other entrepreneurs just keep fighting until you get a yes and try to learn every step of the way."


The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.

Links to third party sites are provided for your convenience and do not constitute an endorsement. BBVA USA does not provide, is not responsible for, and does not guarantee the products, services or overall content available at third party sites. These sites may not have the same privacy, security or accessibility standards. Consult your legal counsel for advice concerning your specific business activities.