Keeping your finger on the pulse of the startup scene can cause equal parts exhilaration and exhaustion.
From the $1 billion, disruption-focused, $1 billion-plus private unicorns like Uber, to the $5 million born-five-minutes-ago Series A-funded companies, a good idea and a grungy incubator might just make the world yours.
Yet alongside the drama of early-stage success stands the sobering threshold of a 90 percent failure rate. Success fails to resemble the easy picture that TechCrunch often paints. In short, the famed “Series A” investment round can quickly become the Series (oh so far) A(way).
Robust planning and expectation-setting holds immense potential for startup success. With only 3 percent of startups receiving venture capital Series A funding, the remaining 97 percent must look elsewhere, which typically implies an initial round of capital investment from angel investors.
To clarify, an initial round of capital is commonly known as a “Series Seed.” A “Series Seed” can take many forms, with a typical range of $100,000-$1 million from non-friends and family. This round carries a bit more weight than a napkin agreement with a lose acquaintance whose niece’s baptism you attended 10 years ago. Instead, these are legitimate investors who want to grow their capital in a formal way based on their belief in your creative execution ability.
For this type of capital raise, one might observe these three points of advice.
1. Out of the gate, investors bet on the jockey, not the horse.
Entrepreneurs must plan for mistakes, demonstrate resilience and flexibility, and learn to lead and inspire all stakeholders, from investors to future employees. Funding will be hard to come by for those who fail to anticipate growth, lack confidence in their abilities, and practice risk avoidance. An investor needs to see moxie.
2. Don’t just have a product, have traction … any traction.
If ideas are a dime a dozen then products are a nickel a dozen. A viable, usable product is a must have, not a nice to have. Yet having some traction will really grease the wheels of fundraising. This does not entail millions or even hundreds of thousands of dollars in revenue; all that are necessary are a few initial users.
Perhaps a pilot customer with a promise to pay if you actualize X, Y or Z success metrics? MOUs or “Memorandum of Understandings” can prove a vital tool towards this end. A few signatures from third parties considering a partnership or a purchase can create significant benefit for the startup with nearly no corresponding risk for the third party. A non-binding MOU alleviates the customer’s financial risk surrounding their purchase while highlighting the existing demand to potential investors.
3. It may be hard to believe but: a Business Plan!
Shriek!!! Before using Reddit to excoriate such a ghastly ’90s-era suggestion, consider further. Though a business plan is nothing if not a constantly changing business manifesto, a company requires reference points if it desires to shift or redefine them.
A robust plan wins over serious investors 100 percent more than a passionate (but unfounded) pitch because it demonstrates character. In such an infant stage, initial investors have little incentive to hold your feet to the fire, so to speak, if your initial plan changes. But they will be impressed to see an example of something so puzzlingly rare in the world of entrepreneurship.
And in this world of competitive fundraising, this could prove that your competition, with no business plan at the ready, isn’t as serious as you are. Some food for thought!