You have busted your hump to get your product concept fleshed out and gained customer feedback about the importance of your solution. Maybe you even have a prototype and have been engaging with customers in trials. It could even be that you have started to generate initial revenue.
Under any circumstance, you have made the decision that you are ready to seek outside capital for you startup and move beyond the “bootstrapping” and friends and family stage of financing. Should you seek investment from a bank/lender, an angel investor or a venture capital firm? What specific angels or VCs should you approach?
There are eight primary things you need to consider before seeking outside funding for your startup, and that will help you make these decisions. Looking at these eight factors will help you determine the how, what, when, where and why of your financing round.
1. Ultimate goal and milestones
The first thing you need to have is a vision. Where do you ultimately want to take your business? To get investors excited and willing to invest, it is essential to clearly articulate your vision, exhibit passion and create excitement about your business. Once you have this big picture story, you need to have your vision grounded in an actionable plan.
What are your financial and non-financial goals for your business over the next 12 to 18 months? How much capital do you need to raise to achieve those goals? What will you do with the money? What key milestones can investors expect you to achieve over the next two to three years, and are there some big milestones that you’ll achieve in the next 12 to 18 months that will result in a step function increase in your valuation?
2. Target market size, growth and market share
Most outside investors have a particular investment thesis that they like to pursue. They invest in particular technology areas or certain vertical markets. Being able to clearly articulate your market size, market growth and your forecasted market share is essential to having credibility in your financial model. However, it is also critical to understanding which investors are the best targets to finance your company. Depending upon the stage of your company, your company might be suitable for angel investors or VCs.
3. Unique value proposition
You need to have a unique value proposition, sometimes called a unique selling proposition, for your product or service. I like to use the word value since it implies that you are looking at things from the customer’s perspective.
How much value does your solution have? It is based 100 percent on the problem you are solving for your customer. The only way to determine this is to intimately understand the customer. It is essential…