By Tian DuBelko
Most startup entrepreneurs underestimate how difficult the fundraising process can be. This is especially true for founders hoping to work with venture capital firms and get their financial backing. To maximize your chances during the venture funding process, here’s what you need to keep in mind:
Valuation is key
A higher valuation is not always better. The reason being that a valuation that’s too high for your company can freeze out future investors and alienate current ones. On the other hand, low valuations can result in excessive dilution. How do you make sure that you get a good valuation? By raising money before you need it. When a VC knows that you desperately need capital, your valuation is bound to drop.
Research the market
An underlooked part of the venture funding process is market research. Good market research will allow you to be well informed of current market trends and possible venture investments in the future. If you know what the ‘market standard’ is for your field, then you can negotiate with confidence, knowing that you have done your homework.
Know who your investor is
While raising capital is your number one priority, you should also take into consideration of who your potential investors are. What’s their track record? How do they prefer to communicate? Knowing your investor’s tendencies can make it easier for you to impress and convince them to invest.
Keep a clean cap table
Something that turns off potential investors is a dirty cap table, which is having too many shareholders or large volumes of your company equity in the hands of people no longer involved in the business. If your cap table shows the lack of a cohesive strategy and a lack of restraint in handing out equity to former founders and employees, don’t expect investors to make good offers.
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