From seed to series: Startup fundraising 101

While having a fantastic idea, a strong mission, and motivated employees is an excellent foundation for a startup, keeping it running requires so much more. Capital, at the end of the day, is the key your startup’s growth and operations, regardless of whether you sit in the seed stage or Series A, B, C, and beyond.

‍Startup fundraising is crucial. It serves as the lifeblood of your startup’s entire operations, from recruiting to research. In fact, close to 40% of failed startups attribute their downfall to either running out of funding or not being able to secure enough. 

But why is funding important for startups? Beyond sustaining your startup’s operations, fundraising also:

• Enables rapid growth and acceleration. 
• Establishes your business model’s credibility.
• Provides the means to retain and attract top talent.

Finding the ideal investor

Securing investors is a two-way street. It’s not just about you trying to convince investors that your startup is worth it. It’s also equally about whether the investors you’re talking to are appropriate for your needs. But finding the ideal investor is challenging and a process of trial and error.

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Question 1

Do they align with my mission?

Your potential investors’ views and goals must absolutely align with your startup’s mission. 

Nothing derails startups from their original mission more than disagreements between stakeholders. When your investors share your mission, you can better maintain cohesion.

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Question 2

What can they offer beyond capital?

While it is true that the goal of fundraising is to secure investors who can provide capital, focusing solely on this aspect when vetting investors is short-sighted. 

You should focus on their value beyond funding – do they have a deep business network? Have they worked in similar industries and can provide strategic guidance? These are all important things investors should be able to offer in addition.

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Question 3

Are they asking for too much?

Do not jump at any offer without carefully considering whether what they’re asking for is too demanding. For instance, for equity-based fundraising, potential investors could be asking for an excessive amount of equity that would lead to heavy dilution, forcing you to lose control over your startup. 

Likewise, even in non-equity-based fundraising, investors could set disproportionately high interest rates and excessive exclusivity clauses, which should concern you.

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Question 4

Do they have a track record of success?

The litmus test for a reputable investor lies in their track record. Meticulously comb through your potential investors’ portfolios and work history through online databases such as Crunchbase and PitchBook. 

By conducting this type of research, you will be able to identify experienced and successful investors, ultimately helping your startup make more informed decisions.

Going through fundraising can feel overwhelming. Startups have to meticulously track and manage their equity on top of negotiating with investors, ensure compliance with legal and regulatory requirements, and maintain accurate cap tables. It isn’t a stretch to say failing to juggle all of these has been the undoing of many promising startups.