Read the case "Tactus Tackles Fund-Raising" at the end of Chapter 8.

Answer the following questions and/or statements in detail:

1. Craig Ciesla and Micah Yairi eventually turned to friends and family for funding. Should they have done that first? What are the risks with raising money from such individuals? Explain in detail using sources and research. Use credible sources to support and explain.

2. What are the risks and benefits of waiting until they had been granted patents to ask for customer feedback? Explain in detail using sources and research. Use credible sources to support and explain.

3. The partners gave up equity in their company part of the ownership -- to get help they needed. Was this a good idea? Why or why not? Explain in detail using sources and research. Use credible sources to support and explain.

4. Why do you think Ciesla and Yairi stuck it out, even with such bad luck? What would it take for you to be so persistent? Explain in detail using sources and research. Use credible sources to support and explain.

"Tactus Tackles Fund-Raising"

Craig Ciesla and Micah Yairi had an incredible idea: What if the flat screen

on your iPhone, AT M machine, or car dashboard could suddenly display

real, three-dimensional buttons when you wanted them and stay flat when

you didnt? Wouldnt that make it easier to type on a smartphone, use

electronics if youre blind, or reach a button while youre driving? How cool

would that be? Ciesla and Yairi, both PhDs with advanced physics backgrounds,

had a way to make this seeming miracle occur: They would be the

first to make physical buttons rise from a flat touch screen or panel.

The concept was solid. The market was huge. Anywhere theres a

touchscreen, there could be a need for physical keys. We thought wed get

fundingno problem, said Ciesla. We were wrong.

They began with a classic case of bootstrapping. While working fulltime

in other jobs, Ciesla and Yairi toiled nights and weekends at the dining

room table or in the garage, working on the core technology and pouring

their own money into the business.

We discussed whether we should have a round of Friends and Family

money, but we shied away from that, said Ciesla. Even if you tell your

friends and family that theres a 90 percent chance theyll lose their money,

they wont believe you.

You dont want to damage those relationships, added Yairi. So they

started looking for professional investors.

We put together a business plan and that took a lot of work, he continued.

Based on that, we created PowerPoint presentations, and pitched

and pitched and pitched to investors. But we were lucky. We had connections

to well-established venture capital firms here in Silicon Valley. One

was sufficiently excited about our concept that they helped us craft our VC

presentation.

Things were going great; an investment in their companynow called

Tactus Technologyfrom a top-tier venture capital firm was virtually

assured.

Yet forces outside their control were at work. This was September 2008.

Days before their final presentation to VCs, the investment bank Lehman

Brothers declared the biggest bankruptcy in U.S. history. America was now

in serious financial crisis.

Venture capital was suddenly paralyzed. A new funding strategy had to

be developed for Tactus. The intrepid duo lowered the amount of money

they hoped to raise, and targeted angel investors.

To make that work, they decided to trade part of their equity in the

company to bring in the appropriate type of people to meet their needs.

They would give stock instead of cash, or to supplement it, so that they

would need less money. By good fortune, Ciesla and Yairi were introduced

to a patent attorney who liked the idea so much that he took equity instead

of cash. That allowed Tactus to file critical patents, an important prerequisite

before engaging with potential customers.

The new strategy was paying off. In the first week of March

2009, the guys got a term sheetan offerfrom an angel investment

group excited about the technology. They would get the

money they needed to go to the next level.

But once again, timing wasnt on their side. On March 6, the

Dow Jones plummeted. The stock market had dropped more than

50 percent in less than 18 months, with no bottom in sight. Private

investors overwhelmingly get their investment funds from their

stock portfolios, so Ciesla and Yairis investors vanished overnight.

It took a few weeks to figure out where to go next. We realized this

is something we hugely believed in. We needed more money to protect

our intellectual property, to engage with prospective customers, to get a

design firm on board to create an improved prototype, said Ciesla. At that

point, they turned to friends and family. They also brought on board Nate

Saal, a friend and serial entrepreneur, who had founded and sold two prior

companies.

In early 2010, they launched an angel investment round and landed

their first significant seed investor. The founders now went full-time with

Tactus. It was risky to give up full-time jobs, so they told themselves: We

have to raise this amount of money by this date, or were done.

With an angel round and several patents in place, they started talking

to prospective customers. Without getting customer feedback, receiving

Series A funding (the first round from VCs) would have been very difficult.

During the bootstrapping phase, the partners put less than $100,000

into their fledgling business. They raised about $200,000 in the friendsand-

family round. In the angel round, they raised around $1 million. When

they finally got venture funding in 2011, they raised $6 million in their first

round.

Stage of company, market focus, size of investment, and level of risk all

need to be aligned to find the right VC, they learned. We spoke with dozens

and dozens of venture capitalists. We heard no a lot, said Yairi. Were a

hardware company, and VCs have shifted to a more conservative investing

philosophyinvesting in software, which can get great returns with less

capital outlay. They want established revenues.

Theres tension, figuring out how much to postpone the next phase of

raising money, said Saal. The longer you can stretch funds in your existing

stage, the more value you can build, and the more equity youll keep in the

next funding round. How long do you bootstrap? Do you go to friends and

family, find an angel investor? Will you do that big round with a VC? Every

entity needs to think about the right transition pointsand how to maximize

value without putting the company at risk.

Raising funds took longer and required more effort than we expected.

Its basically nonstop. Its a constant part of building a company, said

founder Ciesla.