Home Entrepreneur Should you recommend your startup to early-stage investors?

Should you recommend your startup to early-stage investors?


April 23, 2021

5 minutes of reading

Comments expressed by Businessmen the contributors are their own.


Decide whether to raise funds in an early stage can determine the trajectory of your venture. Here’s an overview of why, when, and how to do it.

1. Why do you want an early stage investor?

Angels and other early stage investors typically have two main benefits to offer:

Expense: Building your startup might not be viable without enough capital.

Consultation and connection: A well-connected angel in the startup community will be able to put you in touch with mentors, partners, potential employees and beyond – other investors and who may want additional leadership expense ring for your boots.

Related: ‘I’m black. I am a woman. Let’s talk about raising venture capital. ”

That said, the majority of new businesses are financed by early stage founders. This is often because most startup investors are only interested in new highly scalable businesses, and founders of less risky ventures are reluctant to dilute their stakes. in the company.

2. When is a good time to find early stage investors?

In general, the better you can postpone external funding, the better. Investing in your own startup has many benefits, one of which is that you will be able to get better terms (higher valuation) if you prove the validity and feasibility of the tournament. method.

Any startup is most risky in the early stages when the founders’ assumptions are not validated. The further you can go in the idea and product validation process, the less risky your startup is to outside investors.

Overall, if you’ve decided that the best path for your startup is to raise funds from seeds and seeds, there are three main stages where you can try to do so:

The first and most difficult stage is when you have a naked idea. Attracting investors at this stage will be a daunting process, and even if you manage to do so, you are likely to be undervalued because of the great risks involved.

The second stage is when you have run some concept validation tests and there is some evidence that the problem has escaped and the customer is willing to pay to solve it using your product. . That said, as no-code solutions are getting better every day, building a prototype is becoming much less capital-intensive, meaning most entrepreneurs can kick off the stage. This business.

The third and best stage for fundraising an early stage startup is after you’ve built a working and management prototype to gain initial traction, which makes your business more attractive. much for investors. Ironically, if you have reached this stage yourself, then outside capital may become an option for you as you can continue to grow your business through debt and reinvesting revenue. That said, if you think the venture capital path is the best one for your startup, then fundraising by qualified and well-connected investors at this stage. can help you along the way.

3. How to introduce your startup to early stage investors?

As a startup startup, you’ll quickly find that one of the most useful skills you need to develop is being able to talk about your startup. You will have to do it continuously – with team members, customers, investors, even friends and family. And to be good at it, you will have to do it clearly and effectively.

While this may seem like a very simple skill, the benefits of getting it right (and the costs of doing it wrong) are substantial. This is most obvious when you are and talk about your startup to early stage investors.

Related: VCs Consider This Feature Most Important When Choosing Entrepreneurs to Invest

The more you go into your startup life, the more numbers and examples begin to tell you. But in the case of early stage startups, the burden of explaining the project’s ideas falls entirely on the shoulders of the founder (s).

Your pitch should be as short as possible, and there are three main points you need to make in a few sentences:

  • Problem: What problem are you solving and who has it? Ideally a large market.
  • Solution: What are you building?
  • Insight: What makes you so special and unique? What gives you a competitive edge?

When pitching to investors, your goal is to they understood the idea as clearly as possible. If the average person doesn’t understand your problem and solution, you’ve done a terrible job. Investors need to understand your startup in order to extrapolate and become excited about the opportunities.

Summary:

  • Making sure that fundraising is the best path for you as an entrepreneur and for your startup.
  • Ideally, take your startup as far as possible before fundraising.
  • Learn to briefly and effectively communicate what you are doing and to whom.

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