Startups Should Know These Five Tips Before Raising Capital
Three Startup Takeaways
There are three key ingredients to a successful startup. First, you need a product that solves a real problem. Second, you need market validation that customers will spend money for your solution. And third, more often than not, you need outside investment to support and scale the company.
That third step of finding investment can be the difference between success and failure.
Twice a year, the Greater Des Moines Partnership and BrownWinick Law Firm team up to produce a seminar offering tips on how to approach raising capital for your startup. The event features other entrepreneurs who have gone through the equity process along with angel investors who have made significant investments into startups.
Tips Before You Raise Venture Capital
Fundraising Takes Time
Realistically, you should expect six to nine months for fundraising. For those with potential investors asking to participate, anticipate a minimum of three months for raising your next round.
Value on the Valuation
When determining valuation, avoid getting too academic. Interact with potential customers to clearly understand how large your target market segment realistically will be and then translate that information into your valuation. Setting a good valuation is not an exact science so don’t get so hung up on valuation that it slows progress. What matters most is getting funded and building a successful business, not the valuation.
Understand Your Investor
Some investors invest in specific market or technology niches. Others are more focused on the founder. Many investors will not lead a round. When starting out, finding the lead investor is critical. Make sure your lead investor is willing to help you fill the round as a part of their investment.
Understand Your Investor’s Lingo
Term sheets can be complex and somewhat daunting. You need to be able to speak the same language as the investor because if you stop to ask about terminology, you may lose credibility. Start with the book “Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist” by Brad Feld and Jason Mendelson.
Communication is Key
Typically, 25 percent or fewer of the potential investors you speak with will actually make an investment. Therefore, if you need 10 investors for a given round, talk to at least 40. Need 25? Talk to at least 100. And don’t forget to keep talking with potential investors to make sure they know about your company and what you can offer them.
Learn about other Financing, Banking and Capital resources for your small business or startup in The Partnership’s Small Business Resources Hub or sign up for the Small Business Resources newsletter and stay connected for information about upcoming events, other resources and the latest announcements in the small business community in Greater Des Moines (DSM).