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MenuI am a startup founder with 5 customers (50K revenue in 5 months) for a a B2B SAAS product.
We will add another 3-4 customers in another month. I want to raise a super angel round for 700K.
I have no idea how to go about it. What should I do?
How much dilution should I expect?
Answers
Are you generating 50k a month now or is it a total of 50k over 5 months? Depending on your investor they will value your business in one of two ways. How long are your contracts guaranteed? How do you intend to use the money?
I have never worried about dilution in a business as its more important to make whatever % of ownership you have worth the maximum amount possible. You might own 75% of company worth 1 million dollars but you might also own 50% of a company worth 3 million if built properly.
You can structure a capital infusion deal 100 different ways. Are you looking to only give up equity? What if your investor got his investment $$$ back in an 80/20 preference on free cash flow and took a smaller %. My advice is to focus on exactly what you need the money to accomplish and what value the business will have based on that infusion. Create a monthly rolling forecast for both expenses and revenue as a starting point. Good luck. Raising money is not easy and you really need your business plan buttoned up. Happy to help if needed.
It all depends on the state of your company and your negotiation power. Questions to explore will include:
• How long have you been in operation?
• What is your growth rate?
• How many people in your team?
• What is the value of your assets? (physical + intellectual)
I'm in the process of doing pitch coaching for 30 startups raising $750k and $6M, and the accelerator has already asked me to do another round of pitch coaching for them in September.
The basic principles for raising funds always the same:
1. Cut the crap from your business plan, your strategy and your pitch.
2. Build relations with investors so that they trust you and your business.
3. Pitching to investors is not selling your product / service, it's selling your company and yourself as an entrepreneur.
4. Prepare yourself 10,000% so that you are ready for all eventualities
1. Do you want some help preparing your company for investment?
2. Do you want some help with preparing your pitch to investors?
3. Do you want some help with reaching out to investors, build relations with them and ask for investments?
Related Questions
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When raising money how much of equity do you give up to keep control? Is it more important to control the board or majority of shares?
It entirely depends on the kind of business you have. If you have a tech startup for example, there are pretty reliable assumptions about each round of funding. And a business plan and financial forecasts are almost totally irrelevant to sophisticated tech investors in the early stages of a company's life. Recent financial history is important if the company is already generating revenue and in that case, a twelve-month projection is also meaningful, but pre-revenue, financial forecasts in tech startups mean nothing. You shouldn't give up more than 10-15% for your first $100,000 and from that point forward, you should budget between 10-20% dilution per each round of subsequent dilution. In a tech startup, you should be more nervous about dilution than control. The reality of it is that until at least a meaningful amount of traction is reached, no one is likely to care about taking control of the venture. If the founding team screws-up, it's likely that there will be very little energy from anyone else in trying to take-over and fix those problems. Kevin is correct in that the board is elected by shareholders but, a board exerts a lot of influence on a company as time goes-on. So board seats shouldn't be given lightly. A single bad or ineffective board member can wreak havoc on a company, especially in the early stages of a company's life. In companies outside of tech, you're likely going to be dealing with valuations that are far lower, thus likely to be impacted with greater dilution and also potentially far more restrictive and onerous investment terms. If your company is a tech company, I'm happy to talk to you about the financing process. I am a startup entrepreneur who has recently raised angel and VC capital and was also formerly a VC as part of a $500,000,000 investment fund investing in every stage of tech and education companies.Tom WilliamsTW
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Looking for guidance for where I can find investors for my app?
As Ken suggested, there is a wide breadth of mobile offerings and although there are some great "mobile only" funds, each investor / fund has their own thesis that makes them interested in some but disinterested in others. Also, if your revenue generating, you should seriously consider bootstrapping further. Revenue is treated very strangely in early-stage investing and *might* work against you. AngelList is a great way to research investors but not effective in actually connecting with them. Find investors who you are confident will be passionate about what you're doing based on prior job experience or what you know they are investing in. Happy to talk in a call to help explain this further if you need more clarity.Tom WilliamsTW
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What percentage of VC funded startups make it to 100m+ revenues in 5 years or less?
100M+ in revenues in 5 years or less does not happen very often. As an example of one sector, here is an interesting data visualization (circa 2008) of the 100 largest publically traded software companies at that time that shows their actual revenue ramp-ups from SEC filings (only 4 out of these 100 successful companies managed this feat, which themselves are an extremely small percentage of all of the VC-funded software companies): How Long Does it Take to Build a Technology Empire? http://ipo-dashboards.com/wordpress/2009/08/how-long-does-it-take-to-build-a-technology-empire/ Key findings excerpted from the link above: "Only 28% of the nation’s most successful public software empires were rocketships. I’ve defined a rocket ship as a company that reached $50 million in annual sales in 6 years or less (this is the type of growth that typically appears in VC-funded business plans). A hot shot reaches $50m in 7 to 12 years. A slow burner takes 13 years or more. Interestingly, 50% of these companies took 9 or more years to reach $50m in revenue."Mahesh Bhatia (Early-stage pitch decks)MB
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As a startup, is it better to find a way to pay for services (i.e. design) or trade equity for it?
Before I get to your question, let me give you a tip: always aim settle questions of payment before the work happens. It is ten times easier to agree on a price beforehand, and having done that doesn't stop you from changing it by mutual agreement later. The problem with paying cash is pretty obvious: you don't have a lot of it. The problems with paying equity are subtler. The first one is that early-stage equity is extremely hard to value. A second is that equity transactions require a lot of paperwork. Third is that entrepreneurs tend to value their equity much higher than other people would; if not, they wouldn't be starting the company. And fourth, people like designers are rarely expert in valuing businesses or the customs of of startup equity valuation. In the past, I've both given and received equity compensation, and it's a lot more of a pain than I expected. In the future, what I think I'd try is convertible debt. That is, I'd talk with the designer and agree on a fair-market wage. E.g. 100 hours x $100/hr = $10k. The next time we take investment, the $10k turns into stock at whatever price we agree with our investors, plus a discount because he was in before the investors. Note, though, that this will increase your legal costs and your deal complexity, so I'd personally only do this for a pretty significant amount of work. And I'd only do it for somebody I trusted and respected enough to have them around for the life of my business.William PietriWP
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Launching a startup with no job and no savings. Should I get a job or find investors?
Wow, lots of questions here. Let me try to hit them in order: "Should I get a job or find investors?" IF you have access to enough investor capital (not debt and not your savings) and you can get to MVP and still maintain ownership of a sizable majority of the business then do it. IF that means debt financing then only use the debt lines the cost of which can be carried by returns generated by the use of funds. I would prefer to offer a convertible note to prospective investors that can be easily extended throughout both friends and family and seed rounds (up to $2M to $3M) to get to proof in the market. If you can get to revenue and earnings fast enough then you can avoid equity dilution all together. IF you cannot secure that find of funding AND you cannot produce enough revenue from your business to deliver sufficient earnings for you to live on, then by all means, you should find a way to make the money you need and not burn all your savings or mortgage your home If that means short term contract work that's great. Particularly if you can find log term work that is relevant to the business you're building. If that means taking a job then do that. IF you do that, then yes, be transparent with your employer and let them know you're working on your own business also. Hope this helps....Stephan LittleSL
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