Founders, go get the money you deserve!

Not all companies need a Venture Capitalist (VC), there are businesses suitable for VC and others that are not — it doesn’t mean that one is better than the other. If you prefer to bootstrap and not rely on others, that’s perfectly fine too.

How much money do you have and where does it come from? You may be lucky with your parents and a couple of friends giving you their family or friend capital. If you don’t, or you don’t have enough, then the game becomes harder with Business Angels (the professional ones) and, ultimately, the VC.

If you are a scale business, VC are crucial for few reasons:

1. They will put a lot of pressure on you founders and you will start focusing on what matters — your financials and numbers instead of roaming around.
2. VC may open doors, especially when you find those smart money around. If you want your business to flourish, it’s not just the money, the network, connections and market are equally important.
3. VC are usually seasoned business professionals, getting through their doors legitimizes your business and ability to sell your business.
4. They will help to scale fast. You can grow market loyalty and build moats and switching cost for your customers, eventually stand a good chance to thrive and be the market leader.

On average, VC around the world fund less then 1% of the companies they see, so make sure you show the best version of yourself when the pitching opportunities arise. Rejections are normal, but it is only part of the game.

An interesting side note, a seed round today looks more like of a series A years ago, so competition has become more fierce as well. There is one simple reason: if you are good you need to scale fast and build moats and switching costs , and you need money, smart money.

The VC standard approach:

The single investment they do on a X amount of investment, in case of blooming, should cover the whole return of the VC fund and this means that every and each decision can be the winner of the whole game.

Business Angels or Venture Capitalists?

• Business Angels process is faster and they are independent. VC have limited partners.
• Business Angels do not help as much as VC since they are full time.
• Business Angels are good for anything below 300K USD.

Raising money is about valuation:

Seed round is about 1–2Mil USD and valuation usually depends on 1.team 2. product 3. market 4. timing.

You can think decide to fundraise depending on how long and how much you need to support your product development or marketing. Once you make that calculation, then ask yourself how much you are willing to give out for this.

The goal is to have enough money to get to the next milestone within 12 months — with a firm intent of creating traction. Traction is what will bring you to the next round avoiding a down valuation.

What round are you raising? Pre-Seed, Seed, Post-Seed

Seed can be divided up into three stages:

Pre-seed: For startups to raise a pre-seed round you should have assembled a solid founding team. You need to have a clear direction and understanding of the problem you are solving. You should already have the version #1 of a product at least. Not having built something is a warning sign to investors, because the cost of creating software is now so low. In some cases you would be expected to show some level of customer validation already.

Seed: At this stage, investors are typically looking for 15% to 20%+ MoM growth. You should have already a solid product and are starting to form a growth story. You should speak to investors as soon as there is some positive momentum. You need to be shipping fast, getting new customers, leads, making new top hires and getting media attention.

Take away: Know your stage, who to pitch and the seed funding ecosystem.

Money comes with one crucial concept: Dilution

A pre-money valuation can be compelling.

Why do some companies are worth $30M and some $2M? Because investors set that value, that’s the worth (or future worth) that they are convinced of. It is that simple.

Earlier venture, Higher Risk, Lower Valuation, Smaller Raising.

Valuation is a measure of all the risks that have not been eliminated (team, tech, production, go to market etc.

Your goal in a seed round should be:

1. Finding an amount of money that is enough to grow and show traction in the next 12 months to be ready for the next, bigger round.
2. Find a balance between the money you need to hit the 12-month milestone and the control you are willing to share.
3. Persuade or even better, work on mitigating factors of the risk.
4. Make it attractive to the VC or Business Angel to invest in your company despite the risks.

How to meet a VC and how to plan:

Attend seminars or networking events to explore a bit, discuss with friends and business contacts and use their help to get to the right ones. Other founders or legal advisors are also good sources of referral as they know who are more suitable for you. Go with them and go for those who can bring you smart money and not just money. Often times VC have their main businesses which they are more focused on, go with them. Same goes with Business Angels, get them to understand your business and contribute with them. One of my takes is to start to the top choices and go down. Startup industry is very self-referential and if the big guys (time-constraint) know that you have been previously rejected it will take much more for them to accept you.

The perfect pitch? Answer these questions with the shortest answers you can give:

• Start with Why: What’s your crusade, what problem you are urgently solving?
• How will you do it and why now? Execution and timing are the winners. Who are you, why your team is amazing and why the time is now.
• What are you raising for? Make it clear. The money you need is the fuel that brings your rocket up in the stratosphere.
• Be confident but not hyperbolic when you pitch, get to the point of your “answers”.

If a VC doesn’t call you back, don’t over worry or worse, follow up. It’s a big boy game, if they like you, they will call you. Those guys are old foxes and they have a good sense of smell, so if they like something they won’t let go.