The process requires 2 rounds of fundraising
Seed round is often the first institutional funding round for a startup, where the investors have to believe in not just the idea, but also the team. In our fundraising model, the first round USD50K at 10%. this is more like an angel round from investors. Not to difficult to get and relies more on the individual persona.
The next funding round is USD100K at 10% valuation, double the valuation from last round. This investment will take us to the series A, where we expect to be generating a revenue stream, have several referenceable customers, and a market-tested product with good growth potential.
There needs to be traction
he best thing you can do for your startup is to get traction. If you have a proven model, and a few thousand customers, even if the amounts are small, it's much easier to raise money. Investors are looking for a proven model and proof that you've built a service people will pay for.
Startup traction is what proves to investors that the model works. So be willing to accept smaller fundraising amounts in the beginning in order to scale out the business; once you have scaled online with customers, then you can raise a much larger round.
There needs to be a solid product
Without a solid product, there is nothing to prove. A product that fully validates the idea and serves the needs of the end customer. In a tech startup, this usually comes in the form of a rock solid web application that is bug free and is capable of handling large numbers of users. It could be an app for iOS or Android but I think most tech startups today would be inclined to make sure their product works on mobile first and desktop second.
You need to fundraise in the right markets
There are many reasons why you might have a hard time raising funds for your startup, but one of the most common is because there’s just not any money in your market.
That’s a tough reality to swallow, but keep in mind that fundraising is all about timing and market conditions. There are things you can do to improve your odds, and sometimes it’s just a matter of waiting for the right investor to come along at the right time. However, if you live in a place where there simply aren’t any investors with the means or interest to fund your vision, then you may find yourself out of luck.
Fundraising from the right people who are very familiar with your product and industry
The people who are most likely to give you the funds you need are those who are very familiar with your product and industry. I'm not talking about enthusiasts or fans here. I'm referring to those who know the industry so well that they can see where it's going because they've seen it evolve as well as where it has been. They also understand why your business exists and how it fits into the industry's future.
Those individuals understand your product, vision and business needs on a level that others don't. They're much more willing to bet on you because they have the expertise to make an informed decision that others lack. Their investment is based on their understanding of the industry, not yours. They will also provide more strategic value because they know what other companies are doing in that space and how yours compares.
Understand the industry benchmarks from similar peers
Understanding the market allows you to determine what investors are willing to pay and receive. If you ask USD100,000 for 10% while your competitors want only USD60,000 for 10%, investors will choose the lowest option. Of course, this is not an equal comparison, but investors frequently weigh their options. To remain competitive, you must understand market valuations for companies in various industries and stages in order to negotiate a fair agreement.
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