Money is not the first concern when starting a business, but you must identify why money is needed. When do you start to raise capital? How can you raise capital? The following are some of the most basic concepts when raising funding for a new startup.
The stages of raising capital
If all goes well, most startups have to raise capital several times. Usually, this is divided into 3 main stages:
- New establishment: Self-funding or raising capital from start-up funds or from angel investors.
- Need to grow: Raise capital from professional investment funds or large investors.
- After success: Raise capital from funds or from issuing shares.
Of course, depending on the actual situation, you have many other options.
To start, you can invest yourself or seek angel investors, but not from family members or relatives. A recent trend is called crowdfunding in which you raise capital from small individual donations by a large number of people. The initial amount of capital should be sufficient help you survive the tests a startup faces and to consider other options. This article will mainly refer to the second stage of raising capital. In this stage, you are building the basic product and may be ready to run the demo so you need more capital to prosper.
Only raise capital when you genuinely need more money
The more money you raise from investors, the more you give up control. When still self-funding and developing, don’t focus on raising capital. The process of raising capital will require a lot of time, energy, and concentration. You may find yourself distracted and confused. Instead, a focus on product development is advisable.
The mass media creates the impression in the public that the measure of success of a startup is judged by the amount of capital that the founder raises. In fact, starting a business is a very harsh environment in which many million dollar startups don’t survive even though they have successfully raised a huge amount of capital. Understand that raising capital is just the starting line, it’s not the destination. You’ll recognize when your startup really needs more money. Do not sell false promises to investors. Don’t plan and promote this idea with the goal of making money from investors. Be realistic, specific, and create the necessary growth momentum before actually raising for capital.
Just raise the necessary amount
Million dollar figures sound interesting. You may start thinking, “What would I do if I had 1 million dollars? What if an investor offered 10 million dollars, what would be the plan to use this money? ” This is not a good way to think, and somewhat elusive. Instead, as your startup grows to the next level, consider how much money you need to achieve your goals. For example, suppose you propose an amount of 1X in exchange for a 20% stake. However, the investors see the potential in your startup and propose 3X or even 5X in exchange for a 51% stake. If you decline this proposal, they won’t invest. When investors really see potential in a startup, they often want to control. Do you waver?
Raise capital or not; don’t be half-hearted
Don’t be half-hearted when considering capital. If you really need to raise capital, have at least one person who oversees the process. Your startup must be ready for a capital raising initiative. Apply full energy and attention to the capital raising process and then return to the process of product development and growth. Being half-hearted with raising capital will cause your startup to stall, be unfocused, and perhaps fall into a suspended state of activity that prevents quick growth. A startup can be successful without launching an effort to raise capital. The growth rate and product quality itself will convince investors to support you. When they desire involvement, they will contribute money to the startup. As in every relationship, the one who needs most is the one who is must produce positive results.
Choosing an investor is like choosing a marriage. Choose carefully
We have witnessed many “divorce” cases in projects that are not performing well in the business world. When things do not go as expected, the original terms and conditions change, one way or another. When selecting an investor, consider the person, not the number. Select someone who can guide you through difficulties, who will be willing to mentor you and help you become a better founder. You also want someone who can help your startup identify and improve its shortcomings and develop its potential. Before deciding on an investor, make sure that they will stick with you during the remainder of the startup life.
Be careful of legal issues and types of paper documents
You may have heard a lot of shortcuts in founding a startup because many founders lack experience with contracting. There are many obscure phrases that you may think you understand but actually don’t. The problem is that startups often must operate in a very economical manner. Some founders are unwilling to pay for quality legal services in drawing up capital contracts. Paying for good quality legal expertise is an extremely wise decision. If investors discourage you from using money for this, they may not be professional and may be unreliable. In this case, you should choose other investors. Failure to do so may cause you to lose your enthusiasm and assets simply because you saved money on a few unqualified attorneys at the beginning. There are numerous forms of funding, many terms, an abundance of agreements, and multiple ways in which investments can be diluted. In fact, these elements may be addressed via the Vietnamese legal system