Adeo Ressi's advice to UGC Entrepreneurs on Raising Money

Adeo Resi of TheFunded.com shared his unique perspective on
fundraising with UGC focused entrepreneurs during an after hours,
impromptu session at User Generated Content Conference & Expo. Adeo packed a session room at the end of the day and held the
audience spellbound while he gestured with a Bud Light. Adeo advanced an agenda of recommending people move away from the venture capital investment model, citing the current economic crisis. Please see @BetterPath for live tweats,
and here are the highlights:

Fundraising’s Usual Suspects

Traditional sources of funding are no longer as viable:

1) Angels and/or Friends, Family and Fools

High net worth individuals are impacted by the financial crisis,
and no longer have high risk capital to invest in speculative
ventures.

2) Venture Capitalists

VC funds are in trouble because their institutional investors –
large investment groups like the Harvard Endowment – have seen a huge
drop in the value of their investment assets value current
environment. This means pressure is being put on VCs who 1) cannot
raise additional money as easily and 2) are being reneged upon for
committed capital by institutional investors and high net worth
individuals

Adeo’s Suggestions for Fundraising

Adeo focused on three new best options for financing in the current
economic environment:

Employee Financing

Adeo recommended getting team members to work for deferred
salaries. This could be more viable in a climate where good people
are being let go.

Vendor Financing

Vendors have tons of people sitting around right now without work
to do. Companies are willing to “spend” some of this unusued
capacity, trading work for equity in your company.

Customer Financing

Get customers to fund specific projects in advance. This will help
both sides of the equation 1) your company solves a problem for
customers they otherwise wouldn’t solve and 2) you move closer to your
goals, building capacity and experience while someone else foots the
bills.

Note on Employee, Vendors and Customer Financing:

Does this get “ugly”? Meaning, how much “alternative financing”
can you utilize, piling up strange forms of debt that must be serviced
by future investments?

Adeo says that a ratio of up 50/50 fundraising/debt is OK. For
example, if you raise 600K, it would be acceptable to an investor that
300K will have to go to some form of debt repayment arising from “non
-traditional fundraising”.

Summary of Adeo’s Advice:

Adeo does not recommend working with VCs. Adeo does not like the VC
model, does not recommend the government trust VCs to act as a channel for SBA money to everyday entrepreneurs, etc. Adeo can back this up with negative experiences while working with VCs perceived as “top tier”, leading him to start TheFunded.com.

It is still possible to raise money – its just more difficult. It is
as important as ever to build a great business that can attract employees and partners. And finally, its a particularly good time to seriously consider financing options outside of the VC world.