When you’re looking to raise funds with your startup, you have a dizzying number of options. Trying to narrow down the possibilities can be a headache-inducing exercise.
Accel Partners is a venture capital firm you might want to consider when seeking funding. To get Accel to fundraise for your startup, approach them down-to-earth with a brief description of your project. If Accel finds that your project suits their portfolio, they’ll contact you for further discussion.
In this article, we’ll cover these points (among others):
- What is Accel?
- Is Accel suitable for tech startups?
- What kind of startups Accel invests in
How venture capital firms operate
Venture capital firms operate one or more funds. They use these funds to make investments. Each venture capital firm has general partners who work for the company. The general partners decide where to invest and appoint board members.
There is also another type of partner, known as a limited partner or LP. Limited partners provide additional funding for the venture capital firm.
A limited partner can be a university endowment, finance company, foundations, or high-net-worth individuals. They supply cash but don’t make investment decisions.
What “return the fund” means
If you ask a VC firm what they expect in return for their investment, you’ll usually hear “return the fund.” This means their investment in your startup needs to pay out the entire fund's value—not just the capital the firm invested.
Most startups either fail or return money that doesn’t come close to covering the investment. Investment firms won’t succeed unless at least some investments pay off the total fund value. For example, let's say a $500 million fund invests $50 million for a 25% share in your startup.
To return the fund, the startup will have to exit for $2 billion.
The importance of cap tables in venture capital financing
A capitalization table is a spreadsheet that startups can use to show their overall capital structure. In essence, it’s the site of record for the equity-based transactions of a company.
A cap table displays the ownership stakes, including investors, founders, and employees. Ownership stakes represent the percentage of ownership of each shareholder.
It’s crucial to understand who owns what at each stage of your startup, and a cap table helps you keep it all straight.
Another thing a cap table lists are the company’s securities, such as the stock options, shares, warrants, share classes, and convertible notes.
The biggest reason to religiously maintain a cap table is for the benefit of investors. A cap table helps them forecast the dilution of equity and payouts. It also helps them decide what leverage and control they can maintain during negotiations.
Another reason to maintain a cap table is that it helps maintain trustworthy relationships between you and your employees. The transparency a cap table provides to the employees allows them to see their equity stakes’ real-time value.
Lastly, a well-managed cap table allows your lawyers to accurately present the holdings of your startup. This way, you stay out of legal hot water.
What is Accel?
Accel is an early and growth-stage venture capital firm that helps startups fuel their entrepreneurial dreams. They back entrepreneurs who have what it takes to “build a world-class, category-defining business.”
It’s headquartered in Palo Alto, California, and has been an essential component of the startup landscape for over three decades. Accel has made over 900 investments in more than 500 companies and raised funds amounting to $19.56 billion.
Accel has made some smart investments in India. They recently closed $550 million for their sixth venture fund in the country. Accel invested in the seed round of SaaS giant Freshworks, which is now valued at over $3 billion.
They also invested in food delivery startup Swiggy, also valued at more than $3 billion, and Blackbuck, a brand-new unicorn.
The firm said this as part of a statement: "When we started our first fund in India in 2005, the world was a very different place. Just 1 in 50 Indians had access to the internet, and mobile phone ownership was nascent.
Yet we firmly believed that India was on the cusp of a big change.” Over the years, they’ve gotten good at spotting the organizations that ended up birthing whole new industries.
Here are a few of the companies it’s backed:
What kind of startups do they invest in?
Although they fund companies at every stage of growth, they specialize in early-growth companies. Endlessly innovative teams with solid business plans and disruptive ideas are what they're looking for.
The investments made by Accel vary dramatically. Previous Series A investments ranged between $4.4 to 25 million. Accel takes minority stakes in all of its portfolio companies and looks for holdings with a minimum sales value of $5 million.
Is Accel a good bet for tech startups?
Accel invests in technology-driven companies in the fields of:
- Enterprise Software
- Financial Technology
- Big Data
- Internet of Things
How to get Accel to raise capital for your startup
Slogans such as “we’re searching for intrepid entrepreneurs who’ll change the very fabric of space and time” are often emblazoned on venture capital firms’ websites.
Firms like Accel are looking for something much more down-to-earth, and that’s a massive return on a risky bet.
To seek investments from Accel, approach them with a brief description of your project. If Accel finds that your project suits their portfolio, they’ll contact you for further discussion.
This is what happened with Teabox. They were one of the lucky winners in the eSparks 2013 Top 12 eCommerce Companies from India competition.
Kaushal Dugar, the founder and CEO, says that winning eSparks “gave me access to folks/investors I may not have had a chance to meet given the fact that we were based completely out of the ecosystem -- in North Bengal.”
Dugar didn’t think he had a chance because his company was so far off the beaten path. The eSparks competition got him noticed by Accel Partners, which decided to fund his startup.
The deal was closed in the latter half of 2013, with Accel leading and Singapore-based Horizen Ventures participating in an investment round of $1 million. Prashant Prakash from Accel joined the Teabox board as an advisor.
Another Indian startup funded by Accel Partners is CityMall, a community commerce platform. The company raised $11 million in a Series A round led by Accel. Elevation Capital and WaterBridge Ventures participated.
CityMall plans to use the influx of cash to strengthen its supply chain and logistics network and expand its footprint to 20 new cities.
Explaining why Accel Partners invested in the startup, Vice President Pratik Agarwal said: “CityMall's genius lies in their business model that not only serves the consumers but also has favorable economics that will ensure enduring wide-scale impact."
Funding sources besides venture capital
Just because you're a startup doesn't mean you must get all or any of your funding from venture capital firms. Here are some alternatives:
Family and friends
Although this kind of capital can be easy to get, it can also be risky. That's because if your startup goes belly up and your family member or friend doesn't get their money back, you could end up damaging your relationship forever.
If the money being lent to you isn’t worth the risk, you should probably forgo this type of loan.
Like other fundraising methods, reward crowdfunding is when investors contribute money to a project. However, instead of getting financial rewards, contributors get a non-monetary product or service. The exact size of their reward usually depends on the amount of money that a person pledged.
Because the financing is non-dilutive, founders can keep 100% of the funds after funding is complete.
What equity crowdfunding does is offer securities to investors who give the company money. Every investor gets a proportional share in the enterprise.
The Small Business Administration (SBA) remains one of the best sources for obtaining small business financing. Because the SBA is run by the federal government, they usually offer favorable terms. They also strictly regulate the rates charged by their partner institutions.
However, startups are viewed by lenders as more significant risks than established small businesses.
This doesn’t mean you should stop trying just because you think funding isn't available. Although it might be more challenging to obtain a loan for your startup, it isn't out of the realm of possibility.
With SBA loans for startups, you'll have access to the financing you need without high interest rates and unfavorable terms.
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