There are several things that founders should know before raising funds for their startup.
1. Understand the different types of funding available. Selling shares in exchange for money is just one way of raising funds. There are various ways to raise capital, including debt financing, equity financing, and also crowdfunding. Each option has its own pros and cons so you need to decide which one is best for your business.
2. Know your company’s valuation. You should have an idea about how much your company is worth. A company’s valuation is an important factor in determining how much funding you can raise and at what terms. Figure out your company’s value before engaging with potential investors.
3. Learn and be prepared to negotiate. Fundraising involves negotiating funding terms. You need to know important terms such as the funding tranches, the rights and preferences of the investors, reserved matters, and the use of proceeds.
4. Understand the legal documents involved. There are various fundraising documents, like a term sheet, a subscription agreement, and a shareholders agreement involved. Understand the terms of these documents and get a startup lawyer to review them before signing them.
5. Know your investors. Find out how an angel investor is different from a VC or a family office and which one is better suited for your startup. Know the investor’s track record, and investment style, and ensure that it is aligned with your company’s mission.
By considering these factors, you can be better prepared to make an informed decision about your company’s fundraising journey.
