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MenuWhat a startup needs to know about investment from beginning to acquisition?
How a founder should think of his future startup in terms of investment or raising capital, from the time it starts until the time it will be acquired by another company.
(including finding a co-founder and key employees and offer them shares or options in the company. Also, taking into consideration seed investment, and any kind of investment or raising money by investors...).
Answers
I strongly disagree with the first answer - of course you are building to sell! They key is how fast and what is the multiplication factor for investors...
But back to the question itself, I think the most important thing to remember about investors and fundraising is that you are not just getting money - you are selling your company piece by piece. So at each round you need to be sure that what you get is worth what you give away. Simple math might show that at the end it will not worth much for the founders.
The rest are details of strategy and specific business and need to be discussed directly. Happy to talk.
First, I caution you that building to sell is a huge turn-off to many investors. Not only is it a bad signal, but it's also a bad strategy. There are so many uncontrollable variables that dictate the likelihood of that specific outcome and the terms attached, that it's a really bad reason to start a company.
If you want to sell a Company in an acqui-hire type scenario, I would suggest you don't raise any seed money and that you expect to raise entirely from friends & family or at best, some angel money. But I'm telling you right now that there is exceptionally high chance that you would fail to achieve your goal.
No serious or respectable seed investor wants to invest in an entrepreneur with a "quick flip" mentality. No matter how much you try to hide that motivation, it will come through and you'll get pass, after pass.
Also, I would argue that the kind of technical and design talent that wants to join as a co-founder or early employee has almost zero motivation to end-up at a large company, so defining this as your "True North' is unlikely to recruit anyone of great talent. The quality of your talent can be a significant difference in the valuation of the acqui-hire.
Based on what I know of you (which is very little), my sincere hope is that you don't start a Company as your next step in your path forward. It's incredibly difficult to make a startup successful and given your obvious inexperience, I'd suggest you join an existing one that you believe in and earn your first experience that way. You have far better odds of making money (clearly a strong motivator for you) and you'll be in a much better position to evaluate whether you have what it takes to become your own founder.
A great resource for finding startups that you can join is AngelList. There is a lot of transparency (e.g. how much they've previously raised, who their investors are etc) that will allow you to make an informed decision.
Thank you Tom!
I'm not following this strategy at all. My question is to know how each step works for self education only. Just curiosity to learn.
It's better to talk over the phone.
Related Questions
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How do you get exposure on AngelList to attract angel investors?
What of the following things does your startup have? > Founders who have graduated from prestigious universities / previously exited companies to known acquirers / worked for a known companies (with known being a brand-name company such as Google, Amazon, Facebook etc) > Three or more months of statistically meaningful growth (e.g. for easy sake, double digit growth of a number in the thousands) > At least one investor who is active on AngelList (defined in the ideal state by at least one investment in a company who raised their round through AngelList and ideally whose social graph is connected to "high signal" members of the AngelList network) If you have none of these things, then at least, have advisors and referrers who have a strong AngelList profile. And another option is to seek out the AngelList scouts and pitch them directly. They are more open to this than anyone else and I've seen companies with very little traction and very little social proof get featured because a scout believes in the founder and/or the story. Without any or most of the above, it will be difficult to stand out or build relationships via AngelList, in my opinion. I assume now AngelList operates on a concept similar to the LinkedIn "degrees of connection" model, whereby an entrepreneur can now send unsolicited messages to investors so long as there is a degree of connection between the investor and the company. I get a few unsolicited emails a week from companies whose advisers or investors aren't people I follow but that because of the way they determine "connection strength", these unsolicited emails still gain my attention. I assume this is the case for all investors. So the more that you can build your list of advisers and referrers, the more connections you can solicit. That said, AngelList's inbound email system is almost entirely ineffective for "cold" emails to really high-profile investors. Happy to share with you what I think to be your best options for raising profile for your company.TW
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What is a fair rate of return on a $70K investment?
An agency is an instant cashflow model business. Ugly to scale due to logistics of a team and the mess of being in a client-service business model. But easy to rapidly monetize. Make a phone call. Close a client. Collect the cash. (Yes, that's a bit over simplified). Your girlfriend shouldn't grab a dime from anyone before locking in her first client. An agency can be entirely self-funded and there's little reason to pursue funding. After she had generated her first $50,000 in clients (for example), she can supplement growth with debt financing. And, in no way, is the idea of your generous, retiring parents investing $70,000 into a first time business owner, when statistically most businesses fail ... a good idea. Fair rate is a flexible concept. If I was lending out $70k, I'd want to see 3x $210k back as a minimum. Irregardless of whether that is "fair"... it would be the minimum (for illustrative purposes) where the process of the due diligence and contracts and parting with $70k liquid in trade for a "maybe" $140k gain would be of interest.RT
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Buying shares of an early startup : What are the things to consider?
Ask yourself: -Do you believe in their vision? -Would you leave everything you have to work with them to make their dream come true? -Do you have strong data that tell you that what they say will happen it's true? -Do you think the founders are the best to accomplish what they are going for? -Is it everyone in their team in love with what they are doing? It's important to take in consideration the legal/boring part of investing, but it's not the most important. As betting on horses, there will be only one that wil win (in their space). Are you beating for the right one? Ask yourself that. And stand along your decisionJC
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What metrics are investors looking for in a fashion/clothing/apparel startup?
Team is more important than the startup itself. Investors prefer invest in the Jockey over the Horse. There may be n number of reasons for not getting through the funding rounds. If your startup is able to provide 10x return I can invest straight away. However, I will look at the team first and foremost and then I will look at the management skills and then I will come to other metrics like traction and scalability.DS
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Pre-seed / seed funding for a community app... valuation and how much to take from investors?
To answer your questions: 1) Mobile companies at your stage usually raise angel funding at a valuation equivalent of $5,000,000 for US based companies and $4,000,000 to $4,500,000 for Canadian companies. 2) The valuation is a function of how much you raise against that valuation. For instance, selling $50,000 at $5,000,000 means you are selling debt that will convert into shares equal to roughly 1% of your company. 3) I would encourage you to check out my other answers that I've recently written that talk in detail about what to raise and when to raise. Given that you've now launched and your launch is "quiet", most seed investors are going to want to see substantial traction before investing. It's best for you to raise this money on a convertible note instead of actually selling equity, especially if you are intending on raising $50,000 - $100,000. Happy to schedule a call with you to provide more specifics and encourage you to read through the answers I've provided re fundraising advice to early-stage companies as well.TW
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