September 19, 2007

Sixth-grader raises $6.5 million. Yeah, $6.5 million.

If you’re an experienced entrepreneur struggling to raise VC money, you can start banging your head against the wall right … about … now.

Arjun Mehta, a little 6th grader from Northern California, just raised $6.5 million for his online gaming company, PlaySpan.

From alarm:clock:

“PlaySpan started in Arjun’s garage San Jose in 2006. Seed funding came from Arjun’s game challenge winnings at the 5th grade at Challenger School in San Jose. Today Arjun’s company announced that it has raised $6.5M in Series A funding led by Easton Capital land was joined by Menlo Ventures, STIC International out of South Korea and Novel TMT Ventures in Hong Kong.”


This kid has got to have a wicked connected parent/uncle/cousin/someone.  I don’t care how smart this kid is, no 11-year-old raises that kind of money without a little help from his friends.  But I’m not hating on him.  More power to him.  If I had this opportunity when I was a kid, I’d be all over it.

I’m pretty sure I saw Arjun pitch a while back, and at the time his company made board games (I could be wrong).  Since then his company has become, “the game industry’s first publisher-sponsored in-game commerce network”.  It looks like little Arjun figured out how to adjust his company’s offering to match what the market is asking for.  Not bad for someone who should be trying to figure out how to avoid being hit in dodgeball during recess.

You are Asking for How Much?!

Many entrepreneurs probably get this reaction often when they pitch their ideas to angel investors.  Immediately the entrepreneur is stuck and the conversation usually can turn awkward quickly.  How can you avoid this?  Put yourself in the investors shoes.

1. Angel investors are usually self made millionaires, not billionaires.  Why is this important?  The cash they have available for private equity investment individually is usually not going to exceed one million, and even that is on the high end of the spectrum.  Even this money is all not going to one company as angels will diversify their portfolio just as a stock investor would.  Of course when you do a deal most will invest along with other angel investors, but the sum of money they will invest is usually a lot lower than most entrepreneurs know.

2. You aren’t going to take over the world in one week.  Entrepreneurs often want to hit the stars before they have even reached the moon.  Especially in an early stage deal, investors want to see that you can hit small milestones before they bet the house on you.  Additionally, if you have proven that you can succeed with a smaller amount from angel investors, larger venture capital rounds are much more likely to happen.  Pace yourself, set smaller goals to get to where you ultimately want to go and find money that will get you through each stage of your company.

3. Your valuation is a roadblock.  Often before asking for money, entrepreneurs have already told the investors what their “valuation” is.  In reality, your valuation is just what a group of people say your company is worth, and often is not directly connected to revenue or other fixed sources.  For this reason it is best to not give a strict valuation when first meeting an investor.  Sometimes this one issue can stop a potential deal in its tracks.