The most important principle of startup fundraising that every entrepreneur needs to know is: raise enough capital to achieve a set of milestones that will allow the company to attract the next round of investment. When raising pre-seed capital from friends, family, and founders (FFF) you’ll want to consider the milestones that Angel investors care about and be sure to raise enough capital to reach those milestones.
Below are the milestones that you will need to achieve in order to attract seed investment from Angels:
You may have self-financed the initial startup costs and/or raised FFF capital without a business plan, but in order to attract seed investment from Angel investors you will need a comprehensive plan complete with extensive market research and a detailed financial model. A major piece of the business plan will be your capitalization strategy demonstrating the milestone timeline discussed above as well as the effects of accomplished milestones on the company’s future valuation.
Depending on the complexity of your product you may or may not be able to complete a working prototype or beta version with just your pre-seed, FFF capital. If not, at the bare minimum you will need an interactable wireframe or mockup that demonstrates the product’s features and functionality to attract seed capital from Angel investors. You will also need proposals for the cost to develop the minimum viable product (the features that allow the product to be deployed).
Founding Team, Key Hires, Advisory Board
Seed or Angel investors heavily weigh the importance of the startup team when evaluating an investment opportunity. The reason is simple, the company will face adversity, things will go wrong, and the plan will change. But, if the right team is in place the company can overcome the adversity, fix the issues, and adapt the plan. If you cannot afford to hire the individuals with key expertise you may need to bring them on as co-founders with an equity stake or hire a part-time, interim individual or company. You can also bring these skillsets to the organization via a board of advisors. In any case, you should plan on having a team member, service provider, or advisor for every part of the business other than your area of expertise. For example, if you are a tech expert launching a mobile app, you will want a team member, service provider, or advisor fulfilling the following roles CEO, CFO, sales, and marketing. At this stage, it is fine for one person to fill several roles so long as they have the expertise to fill these gaps at their fingertips.
Be sure to spend a small amount ($2,500 – $5,000) of your pre-seed startup capital to ensure that you legally setup your firm. Work with a lawyer to ensure that you are setting up the business according to what’s best given your goals and capitalization strategy. It’s better to pay a little now and get it right rather than have to go through the costly and arduous transition down the road.
If your business can secure any intellectual property rights now would be the time to do it. Common types of IP rights include copyright, trademarks, patents, design rights, and trade secrets.
While all of these milestones are vital to the success of raising seed capital from Angel investors, market validation is towards the top of the list. In your pitch to FFF investors you told them that there was a need for your product in the market. In your pitch to Angel investors, you will need to show investors this need. If you were able to build your product or a working prototype / beta version of your product it’s time to get either paying customers or even free users. At the bare minimum, obtain customer feedback and demonstrate that your product is fulfilling a real market need.
Want To Learn More?
Download our free Raising Capital from Angel Investors eBook.
This guide will walk you through the process of obtaining seed capital for your startup. This book includes:
- An overview of the angel investor process and who they are
- The milestones angel investors look for when evaluating your business
- Strategies for finding the angels best fit for your startup
- How to nurture the relationship, prepare for the meeting and deliver the pitch
- Rounding out the details and preparing for the future