Over the last several weeks, we have been sharing some concepts for leaders considering making a transition from a large company to building the next chapter of their career in a smaller, early-stage venture.
Leaders who have built an effective set of skills while working for a large company are needed in the early-stage to help bring innovations forward in the market. The risk of all of us being “Amazoned” in the not-too-distant future is real. Being on the forward edge of innovation in the early-stage is one way to stay ahead of the threat of becoming extinct as marketplaces become more efficient in serving customers.
The focus for today’s topic is on the need to raise capital to support innovation in the early-stage marketplace.
The need to raise capital for early stage, innovative ventures is one of the practical realities of driving innovation and change in many industries. Most, if not all, game changing breakthroughs come because of people and firms risking real money on a venture that may not work, and the statistics say most don’t work. Although it seems like a daunting task for many leaders transitioning from a large company to an early-stage venture, raising capital is part of the routine business plan of companies on the forward edge of innovation.
Raising capital is never easy, but it is a manageable, well-worn process in building the business. It becomes part of the essential elements of the plan like building the operating plan, setting clear milestones tied to capital needs, and the practical aspects of making the pitch and building the funnel of potential targets.
Upon company formation around an innovative idea, especially in capital intensive fields like life science discovery, hardware technology, etc., there is the most likely the need to raise capital to move the innovation forward. These very early-stage businesses are typically funded by friends and family that are likely more interested in supporting the individual’s dream than in the potential of the business, and angel investors who are doing early due diligence on the potential of the business.
I think Jeff Bezos characterized this stage of funding best when he testified before the US Congress in 2020: “The initial start-up capital for Amazon.com came primarily from my parents, who invested a large fraction of their life savings in something they didn’t understand. They weren’t making a bet on Amazon or the concept of a bookstore on the internet. They were making a bet on their son. I told them that I thought there was a 70% chance they would lose their investment, and they did it anyway. It took more than 50 meetings for me to raise $1 million from investors, and over the course of all those meetings, the most common question was, “What’s the internet?”
Subsequent rounds of financing, whether they be Series A, B, and C rounds of venture capital funding, private equity funding to scale the commercial growth of the business or cross-over/IPO funding to get to the public markets all add a degree of complexity and variables that need to be considered. Suffice to say, business books and business school courses are written about these aspects of financing and major finance firms make a living working through process of financing innovative companies at this stage.
Capital raising is just another piece of the business plan, but it is typically one aspect of most concern for leaders transitioning from a large company to one in the early stage. However, the path is well-worn and like most difficult tasks in building a business, it requires some smarts, but mostly grit and determination to make it all come together.
Strong leadership is needed in the early-stage marketplace and leaders from large companies have the skills and experience to create great value at the forward edge of innovation. As we look to build and strengthen our leadership over a long-term career journey, the early-stage market provides a wonderful environment for leaders to learn, grow, and bring world-leading innovation to the market.
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Also, for those leaders in healthcare, the opportunity to be at the forefront of creating and scaling life-changing innovation resides in the early stage. This sector needs strong leaders like yourself to drive innovation in the years to come. I wanted to share a link to a program specifically for leaders in healthcare who are looking for insights into building the next chapter of their career in the early-stage. I was asked to contribute to this program based on my experience of leaving a large healthcare company and building my career in the early-stage. Please take a look at the link below.