Caution When Raising Capital for Your Startup
This article is written by Munira Hussein, a Contributor Author at Startup Istanbul.
Endeavor plays a major role in bringing startups and investors together. Check if there is an endeavor office near your and pay them a visit for advise and help. Their activities are to connect investors around the world so that they can do deals together. It is possible to raise money in every market or ecosystem if you are good. Then you can go on to raise money from all the other investors that you like if you have the right network.
If you want to raise capital today, you can’t start planning today. You’ll need to have started six months to nine months prior. You need 6-9 months to raise and close. In the meantime, as you organize for your fundraising, you have to monitor your cash flow, burn rate and run rate closely. Otherwise, you find yourself desperate and when you are desperate you tend not to make the best deals. You’ll be in a hurry to salvage your business and might end up even losing it to your investor.
For a Silicon Valley investor to consider investing in your business, you will need to get to 3-5-million-dollar phase using your local or regional investors. There are exceptions to this but in most cases, that is the standard. If they have never invested outside of the US, you might not be their first investment. This might see you doing five rounds of fundraising. You will need to ensure that the terms of investment favour you as much as your business.
Do your homework when approaching a VC. If you can build a friendship and personalized relationship. It would be good. They will be investing in you as much as in your business. When you have understood their other investments and the nature of their kind of investment, you can them present your request.
If you can do more with less money, it shows that you are a responsible entrepreneur. Think about capital efficiency. Investors sometimes want to take a huge chunk of your company. Ensure the stake you have in the company is worth it so that you do not feel like an employee in your own company.
Don’t think just about the money but even how to get to the next stage. Strategy, business development and geographical information. Only raise the amount you need. If you over-raise, you might get diluted. Most data used is American Data. It is a mature market and the valuations are very high. Don’t use the variations in America for your local investor.
Think ahead about dilution even before you get to five rounds. Traction, market potential and exit hence it is important if you are in more than one geographical market. Understand the term sheet. Your founder equity capital might not be all paid to you immediately. Learn who gets paid what when. Understand at what stage you get your investment.