Financing a Technology Startup: Opportunities and Pitfalls

The Internet and telecom bust exposed many shortcomings in the financing strategies taken by startup firms and their venture capital backers. At one point in time, firms could get started with a business plan alone, even with seven or eight figure valuations. But no longer. The challenges of starting a technology business in the post-bust environment bear careful reflection. Over the last couple of years, startup firms have experimented with a variety of alternative strategies and, in many cases, are far more secure as a result. By the same token, it is also worth remembering what strategies worked in the pre-boom environment when easy money was an unfamiliar concept.

By funding a variety of startups without reliable track records, the boom environment generated a number of difficult “fish or cut bait” decisions. In many cases, these decisions were painful and required difficult judgment calls. To be sure, the theory of not putting good money after bad and biting the bullet through bankruptcy or liquidation is clear; nonetheless, the practical challenges of pulling the plug on a project full of hope and once-bright possibilities are multifold. Moreover, this challenge looks quite different from the venture capital side of things than it does from the perspective of the business whose future has just been sold for pennies on the dollar.

The final step for those startups that survive is transitioning to a more sustainable financing plan. For some, this means looking for a buyer or long-term partner. For others, it means contemplating an initial public offering or seeking additional venture or strategic financing. In no case, however, is the decision of how to proceed or when to take a particular course an easy judgment call. And once again, different stakeholders will have different perspectives on the long-term strategy, often raising questions about how to reconcile potentially incompatible strategies that once could co-exist when a startup’s future planning simply involved asking whether it would be around next year.

In this annual Silicon Flatirons event on startup businesses, we will explore all of the above questions with a stellar set of panels of those who have struggled with the questions above. As per usual, this event is co-hosted by CU’s Entrepeneurial Law Program, the University of Colorado Tech Transfer Office, and the Robert H. & Beverly A. Deming Center for Entrepreneurship.