Preparing for Fundraising
Raising capital for your startup can be an overwhelming and even mysterious project for most entrepreneurs. The intention of this eBook is to lay out the basics of the fundraising process so that you – the entrepreneur – understand the critical success factors and the best practices, and can develop reasonable goals and expectations about the process.
For a startup company, raising capital occurs in a series of different investments throughout stages of the business lifecycle. For example, let’s say there is a new tech startup that raises $25,000 in funding from their Friends, Family and other Co-Founders (FFF) so that they can get the business going. Within a year they may be making a profit, but they learn that they need additional funding so that they can continue to grow their business. At this point they seek out Angel Investors for a seed round up to $1,000,000, followed by a series of large investments that can be well over $2 to $10+ million from Venture Capitalist (VC) or Family Offices typically called Series A, B, etc. In its simplest form, the goal of your capital strategy is to reach a set of milestones that attract these different investors so you can eventually raise the next round of capital. This eBook will elaborate on these milestones in order to educate entrepreneurs on how to raise capital effectively.
It is impossible to discuss raising capital without putting into context the entire startup process. Raising capital is a by-product of adequately preparing your business and team. Angel Investors and VCs are in the business of investing in companies that present good “businesses to buy” (investment opportunities). Ideally they want companies with a high growth model and an early exit strategy along with a great product. Your job as an entrepreneur is to figure out what an investor wants to see in your business and to put those features in place. The best approach towards obtaining investment is to focus less on hard selling tactics and instead more on building a great investment opportunity and then deciding which investors are best for the company.
In this eBook, we will discuss the entire startup process inside the context of successfully raising capital. This is done by organizing the startup process into 7 major categories with groups of individual milestones under each category. Please refer to the following infographic for a high level description of the 7 major categories as they relate to each round of capital investment (one of the things to notice is that many of the milestones are prioritized and accomplished at the same time while others are done simultaneously).
The graphic below displays the funding milestones discussed in the last section. As you move up the rounds of funding, more and more will be expected to have been accomplished.
The Startup Funding Milestones from The Startup Garage