Upand$tarting

So you have a great product idea, developed a business plan and started your company. You may have decided to grab investor money right away or you’ve bootstrapped for a while and believe you need investment to take your company to the next level. There are a number of ways and places to raise money and where you go depends on a few things, chiefly on your stage and goal. In this post, part I, I will raise a number of questions that really need to be answered before we decide who to pitch our company to for funding.

What is your goal for the company?

Do you see your company as the next Facebook or Google, do you have the market data and business plan to support that? Or, is your company more of a lifestyle endeavor that will provide you with a nice income but never turn into anything larger than a 3 -5 person company? Your goal and ultimately your end game is the driving force behind raising money and where you get it.

How much ownership do you want to give away?

Yes raising money almost always means selling ownership in your company. I’m not talking about debt, but investment. A few questions you need to ask yourself as you go through this process are: How much money do you ultimately need to raise today? Until the company is cash flow positive and can fund growth internally? How large of a founding team do you want to support, how many employees do you need and how much ownership do you want to set aside for them? Do you want to relinquish control over your company or sell a minority share?

You can see that answering these questions will naturally guide you to the type of investment you and your company will be comfortable attracting.

How far along is your idea?

Does your product or idea only live on a few PowerPoint slides or have you successfully produced and sold product or services? Is your website a mock-up or is it live? Have you begun the pursuit of IP or completed a patent application?

The stage of your company and idea will greatly determine the amount of ownership you will need to sell to your investment. Generally, the earlier you are in the development of your company the lower your valuation will be in the eyes of a potential investor.

Who’s on your team?

This may not be as important as the earlier questions, but, the answer will have an impact on who you will be able to attract and your company’s valuation. Are you toiling alone in your garage with visions of the next Apple Computer or have you attracted a solid founding team with other start-up successes under their belts? The size of your team may not be as impressive as their past performance creating viable companies. If you are looking to attract institutional investors you will be more successful with a proven team that is familiar to the VCs you are courting.

OK, you’ve answered all the questions above and now have a clearer picture of the amount and type of investment you are after, the amount of ownership you will need to relinquish in order to get this money and who you need on your team to attract the money. What’s next? In my next post I will review the different types of investors that are out there, what there sweet spots of investing are and pros and cons of each. Stay Tuned!