The Realities of Raising Capital and Exiting a Business

In this episode of Humans of Flippa, Omeed Tabiei, a seasoned attorney and entrepreneur with extensive experience in both legal counsel and startup founding, provides valuable insights into the intricacies of fundraising and exiting businesses.

From understanding when to raise capital versus bootstrapping to learning how to properly prepare for an exit, Omeed shares wisdom gained from both sides of the table – as a lawyer for high-profile companies like Hyperloop and as a founder who has been in the trenches himself.

Whether you’re considering raising capital, preparing for an exit, or simply want to understand the landscape better, this discussion offers practical advice on navigating these complex processes.

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From Corporate Counsel to Serial Entrepreneur

Omeed’s career trajectory provides a unique perspective that spans both the legal and entrepreneurial worlds. Starting as corporate counsel at Virgin Hyperloop One, where he helped raise approximately $150 million and navigate complex cap table restructuring, he gained firsthand experience in high-stakes negotiations and transactions.

“My first job was corporate counsel at Hyperloop. It was the Virgin Hyperloop One. So it was ideated by Elon Musk, but Richard Branson ended up being the chairman of the board for a period of time,” Omeed explains. “I helped them raise around $150 million.

What makes Omeed’s perspective particularly valuable is that he didn’t stop at providing legal counsel. His entrepreneurial spirit led him to launch his own startups, experiencing the challenges that many founders face. This dual experience allows him to bridge the gap between legal expertise and practical business acumen, understanding both the technical details and the emotional journey of building and potentially exiting a business.

The Reality of Raising Venture Capital

Many first-time founders harbor misconceptions about what it takes to raise venture capital. Omeed candidly shares his own experience trying to raise funding for his AI computer vision app:

“I thought like, you put this sexy pitch deck together and then you email it around to 20 or 30 VCs. And that’s how you raise venture capital. I’m literally speaking about myself right here. That was me,” he admits. “I put this pitch deck together and I go and talk to all these VCs and then all of them are saying no to me.”

This reality check highlights several crucial insights for founders:

The Importance of Warm Introductions

Cold outreach to investors rarely yields results, especially for first-time founders. Omeed’s breakthrough came through his co-founder’s personal connections to angel investors:

“My co-founder happened to know a bunch of really wealthy angel investors, because he was connected into the space and he had personal relationships with them,” Omeed recalls. These relationships proved invaluable, ultimately helping them raise about a quarter million dollars.

This experience underscores why platforms like Flippa Invest are so valuable – they provide access to a community of accredited investors for founders who don’t already have those connections.

Understanding Investor Expectations

Before pursuing venture capital, founders need to understand what investors expect. Omeed references the “triple, triple, double, double, double” growth model common in SaaS:

“If you take venture capital investment, they’re going to expect you to triple over two years and then double for the next three years. That’s what creates the hockey stick growth,” he explains. “If you don’t think that you can achieve that sort of growth, raising venture capital probably is not the best approach.”

This growth requirement places enormous pressure on founders and can fundamentally alter how they operate their businesses. Understanding this before raising capital is crucial for avoiding misaligned expectations and potential failure.

Is Fundraising Right for Your Business?

One of the most valuable aspects of Omeed’s perspective is his nuanced view on whether businesses should raise venture capital at all. Instead of viewing fundraising as a badge of honor or an inevitable part of startup life, he encourages founders to ask deeper questions:

1. Can you meet the expected growth rates? Not all businesses can grow at the pace VC investors expect.
2. What is your specific reason for raising capital? The funds should be tied to a strategic purpose, not just obtained as validation.
3. Does your vision align with VC expectations? Venture-backed companies are expected to aim for unicorn status.

Omeed challenges the tribalism often seen between bootstrappers and VC-backed founders, offering a fresh perspective:

“It doesn’t have to be one or the other,” he asserts. “Great, you grow your 15-20% year over year, very safe, very comfortable, your business is profitable. But what would allocating capital to maybe this new strategic plan that you’ve had in mind do?”

This balanced view emphasizes smart capital allocation over rigid adherence to either funding philosophy. Founders should consider all available tools, including strategic funding when it serves specific growth initiatives.

Preparing for a Successful Exit

For business owners considering an exit, Omeed offers insights that go beyond standard advice about working with brokers and preparing documentation. His guidance focuses on dynamics that can make or break an exit process:

The Seller’s Role in Setting the Pace

According to Omeed, sellers must actively drive the exit process forward: “The seller’s role in an exit is to set the pace of the exit. If you don’t set the pace of the exit and put pressure on closing the deal, the buyer will drag their feet.”

This proactive approach involves consistently pushing toward the closing date and addressing buyer inquiries promptly. As Omeed emphasizes, “Time kills all deals,” and sellers must work diligently to maintain momentum throughout the process.

The Power of Transparency

Perhaps counterintuitively, Omeed advises sellers to be upfront about potential issues rather than hoping buyers won’t discover them:

“A lot of sellers take the approach in deals of, ‘We’ll just let them do the work of finding it.’ But the problem with that is the optics of that actually make you look less transparent,” he explains. “If you’re carefully intentional with this piece, it’ll actually result in a smoother process for you.”

This transparency builds trust with buyers and prevents them from questioning how well you understand your own business – doubts that could jeopardize the entire transaction.

Resources for Founders at Every Stage

For founders at any stage of their journey, Omeed’s law firm provides support across three primary areas:

1. Incorporation: Setting up a business structure that aligns with future goals
2. VC Fundraising: Navigating the process of raising capital
3. Exits: Preparing for and executing a successful sale

Want to Connect with Omeed?

For those interested in connecting with Omeed for more specific guidance or resources, he offers guides for sellers, buyers, and those raising venture capital.

By reaching out through his social media platforms with the message “Flippa,” you can access these resources and receive personalized recommendations based on your specific situation.

Connect with Omeed through his LinkedIn here >

Making It Easy to Sell Online Businesses
Flippa provides owners and investors with the tools and expertise to sell.

400,000+ Weekly Active Buyers

20+ Multi-Language Brokers

Negotiate and Receive Offers Fast

Integrated Legal, Insurance, Finance and Payments