- Before you go out to raise a round of financing, it's important to understand your specific needs at the moment in time for your business. If you're at the very beginning of your company and it's two or three founders and you're just starting to work on the first product, the amount of capital that you need is probably going to be pretty modest. It might be hundreds of thousands of dollar, half a million dollars, maybe a million dollars. If you're a 500-person company that's preparing to go public, you might have a very different kind of financing that you're raising, a 50 or $100 million round, from a completely different type of investor set.
So, start by understanding your needs in terms of the amount of capital you need, then think hard about the type of investor you need. How active do you want them to be in your business? How much specific experience with your business do you want them to have? Are you really just looking for incremental capital or are you looking for people who can actually help you take the business to the next level? A lot of entrepreneurs don't think too hard about this and sort of view capital as a generic thing, and the amount of capital that you raise as pretty fungible, but that's a mistake.
It's really useful to have a lot more precision when you're going out to raise money on how much money you need to raise, why you're raising it, and who you want to raise it from. All of these things are linked together and fundamentally as a founder, you're going to be raising money typically for a venture-backed business multiple times. The investors that you get early on in your company can either really help you or really hurt you. Obviously you want them to be helpful. So really understanding what kind of capital you need, how much you need, and who you're raising that money from will set you up really well for your future financing needs.
- Exploring potential stakeholders: friends, family, and more
- Finding a venture capital firm
- Breaking down the term sheet
- Taking on debt
- Asking for NDAs
- Accepting a no