Funded: The Entrepreneur’s Guide to Raising Your First Round
But it doesn't have to be. Entrepreneurs who run effective fundraising processes don't do it by accident. With this book, you'll learn what it takes to successfully raise a round of funding for your company. Author Katherine Hague explains how the venture capital industry works, and walks you through each step necessary to plan, execute, and optimize your own fundraising round. Packed full of exercises, checklists, and templates, this book guides you through the process from start to finish. It's ideal for entrepreneurs raising later rounds of capital, as well as those just starting out.
Gain an understanding of core venture capital concepts and standardsLearn how to develop and hone an investor pitchCome away with a plan to hit the fundraising trail for your companyDevelop the confidence you need to negotiate key terms in a funding dealUnderstand best practices in. I can't find it! Beyond percentages this means terms and conditions which add more protections for their money and more limitations on what you can do on your own.
In earlier stages you may crave and prize flexibility and the ability to make all your own decisions far more than money.
A Guide to Seed Fundraising
So, find a happy balance. There are well known dangers of having too much money. It can lead to overspending, spending on the wrong things, slacking off, lack of creativity or focus on a more profitable model, more distractions and friction between founders.
It is clearly important to do some serious math when approaching a fundraising round. Yet, these rough rules can help make sure you are on the right track too. That was back in , and the inflation of labor costs has been fierce since then.
So, if using this formula, make sure you ramp up your numbers accordingly. Managing Director of Techstars in NY, Alex Iskold recommends this basic formula for justifying and pitching investors with your fundraising ask:. To get there, we need Y people, and we need Z capital.
Ask an Investor: What are the Pros and Cons of Raising Venture Capital? - StartUp HERE Toronto
We believe it will take us W months to get there. You should implicitly understand the difference between needed, realistic, and ideal investment. The distinction between all three investment plans matters. You should develop a separate costing outline for each, allowing you to understand what your company needs to launch, survive, grow, and return a profit for you and your investors. This level of investment which will allow you to put in place all of your infrastructure as well as covering all manufacturing, distribution and advertising costs.
Not only that, an ideal investment will provide enough capital to cover all costs and provide your start-up with a substantial reserve for future expansion. Gaining ideal investment straight away, if at all, is very rare, but defining the perfect scenario will help to create a good project roadmap. Those goals will be determined by what combination of investment rounds you are pursuing. If, for example, you are looking for seed investment, then the immediate needs for your company will include market research, conceptual design, developing infrastructure and creating a prototype.
Needed investment will allow you to achieve the absolute minimum to push your start-up forward.
Knowing how much capital is required to keep your start-up developing as a going concern is imperative. The types of investors you are hoping to engage with will answer the latter. If you are raising capital from friends and family, their financial situation will define how much they can invest.
An individual angel investor is probably going to contribute a smaller amount than a VC group.
How To Determine The Amount To Raise In Your Round
Whoever is your target investor, you need to be realistic about how much capital to expect from them. Realistic investment is a much more subjective number than needed and ideal figures, but it will give you an investment amount to aim for, and should be closer to any compromise at the conclusion of negotiations.
Knowing the difference between realistic, needed and ideal investment levels for your business will help you chart a course through each investment round, informing your negotiation decisions in terms of how much capital you need to develop your start-up to different levels within best- to worst-case scenario timeframes. From my experience in raising capital, it is important to understand how much it will take to oversubscribe the round quickly, and whether you have the people who you can tap into for capital.
Once you have a clear understanding of who will invest for certain , then determine a round amount.
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Normally, when you are oversubscribed, the story becomes more attractive and your round is much easier to sell. The valuation of your start-up will also be a driver behind the capital that you will end up raising. This simply refers to how much equity you should give investors in return for their capital.
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Both types of valuation will usually contradict each other. This difference in agreement is where negotiation of terms takes place. In the end, the ultimate agreed upon valuation of your business will depend on:. The valuation of your start-up is a fluid, subjective figure; for that reason it is best to have a minimum and maximum range in mind rather than a single number. This will give you more room to negotiate. The best way to show investors that your start-up is worth your valuation is to have a well-structured plan and have as much market research in place as possible, as well as a financial forecast.
You definitely do not want to price your company too high or you will scare people off. You will need to research the market and ask around about valuations that some of your direct or indirect competitors had when they were raising money at your same stage. This type of data will be very useful, and information that you can also leverage during the negotiation process with investors. When it comes to start-ups it is very difficult to know where you will be in 5 years.