Michael Tsokur brings an unlikely skill to all of the startups he works with: the outsider’s perspective.
As Principal of his firm, Akrasia Capital, and Fractional CFO of various startups, Michael helps founders see their company from an investor’s standpoint. He has a background in banking and also ran a number of companies himself. His sweet spot now is in the startup community, where it’s never been cheaper, easier, or faster to start a company.
What he finds are startup founders who can leverage platforms to automate many different types of tasks, but they still need financial expertise. Many of them can’t afford a full-time executive, which is where his firm comes in.
Akrasia Capital provides clients with financial acumen and creates confidence in their own accounting numbers. With tidy, trusted books, Michael can look at company financials and recommend business decisions based on his insights.
In his time working with hundreds of founders, Michael has seen and experienced a great deal—including a wealth of misperceptions. Here are a few of the most common myths about venture capital.
Myth #1: The Startup/Investor Relationship Is an Adversarial One
Many founders think that investors are not on the side of the startups they fund, but Michael totally disagrees. Investors are there to partner with founders—not to fight against them. If the relationship does feel adversarial, then the founder didn’t find a good fit with an investor.
One founder, in particular, did not disclose to his prospective investors that he was going through a divorce during the investment round. Once the divorce was finalized, his ex-wife put a lien on her shares in the company.
Founders should always be transparent with investors who fund their companies. In this case, had the investor known the founder was going through a divorce, they could have given guidance on the best course of action (before a lien happened).
Myth #2: Fundraising Will be Simple and Quick
Founders routinely expect that they’ll go out and fundraise $5-$10 million and it will be simple—a short process with just a few sources. However, Michael’s experience says otherwise. Working with a startup in 2017, the fundraising process took 12 months with sources in Canada, the U.S., Mexico, and South America.
Founders can expect an average of 40 pitches to land one investor. Those pitches don’t just involve sitting down and having a conversation, either. They include requesting and receiving an introduction, securing a meeting, preparing for each meeting, flying to a location, getting on follow-up conference calls, and much, much more.
Fundraising takes a lot longer than most founders expect, and it requires a ton of fortitude. The emotional roller coaster that many founders ride as they face repeated rejections is not for the faint of heart. In the case of the 2017 startup, the founder got completely burnt out and had an emotional breakdown—at which point Michael stepped in.
Myth #3: Venture Capital is the Only Way to Start a Company
If you look at all the funding announcements in the press, it might seem like venture capital is an incredibly popular, accessible way to start a business. However, only .03% of companies that apply for venture capital actually receive funding.
Why such a low acceptance rate? Venture capital investors are looking for sustainable, long-term growth potential. A well-known calculation Michael shared to determine the potential success of an investment is the triple 2, double 3 formula. If a company can triple its revenue every year for 2 years, and then double its revenue every year for 3 years, it’s more likely to attract venture capital investment. And in that calculation, the end result investors are looking for is annual revenue of $100 million or more.
Given that every company can’t possibly achieve these levels of growth, there are other ways to fund new companies. Bootstrapping, for example, is much more accessible (albeit slower) way to grow.
Steel Yourself for the Emotional Roller Coaster of Fundraising.
At the end of every What’s the Factor? podcast, we ask each guest what his or her factor to success is. For Michael, it’s not about the numbers—it’s about getting ready to deal with the emotional ups and downs of near-constant rejection and being able to weather the storm.
Founders need to be laser-focused on their mission and constantly reminding themselves that they’re going to achieve something not everyone can. They must stay strong and confident to endure the arduous process of fundraising.