No good investors would want to invest in a company where the CEO did not have their head around the capital needed. A financial projections and plan is required to even get a meeting with most investors. That said, there can always be some back and forth negotiations. A VC might want to put more money in to scale faster. A CEO wants minimum dilution and to get the valuation up by achieving key milestones like MVP, traction, team building and quantification of customer acquisition costs. All of these reduce risk and hence increase the share and valuation price.
Pre-seed means smaller amounts and lower valuations because the risks are high. Contrary to popular belie, very few VCs do these stage deals, unless it is a team that has made lots of money for investors before. Typically, these rounds are $250,000 to $500,000 and done by angel investors.
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Crowdfunding has a place, and I am excited about its growth possibilities in certain areas. The funding raised has been about doubling each year for some time now.
It is generally for consumer-oriented companies where the vote of the consumer matters. This is a test of the product demand as well as a way to raise funding for a production run of an early version.
Recently the amount that could be raised was increased to $20 million via crowdfunding and the amount of fraud has been low. Of course, the average consumer does not have the skills to evaluate a company, team, market opportunity, and strategy well. And this takes real work. So essentially, they are just betting on the product concept. And since the amount of money raised is generally small (~$100K-$250K) it is enough to replace the traditional “Friends and family” money when the founders have no wealthy family or past success to roll their gains into the next business.
Of course, even professional venture...
My favorite technique is approaching the CEOs they have invested in before, which are often available in public records or on their respective websites. First you need to target very narrowly the right investors for your type of deal by industry, stage and sometimes geography. Then with this focused list you can find their portfolios, and the CEOs of those companies. Although many CEOs will not take your calls the right approach, asking for help, not money, can get you their sympathy and a lunch. Not long ago they were you and the founder, bond can be powerful.
Lawyers can be approached that do deals with these companies, and top-level accountants. Often public records like Edgar where SEC IPO disclosures can be found will point you to these relationships.
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1. Thinking it is easy. It will typically take 3–6 months of full-time effort. 80% will fail.
2. That the “Idea” is worth something. It is not worth $0 because anyone can copy an idea and do better at marketing, sales, product development or just dump capital on that idea
3. Thinking VCs are the best source, they are the worst for 90% of businesses. They finance at most 1 in 200 plans and represent a tiny percentage of business financing. A narrow niche of rapid growth, technology based companies mainly.
4. A company has value on day #1. It does not! Value and pre-money valuation come from team + plan + market research + product development. Investors generally put money in only AFTER value is created.
The pitch deck is critical. It separated out the 75% of people looking for money that did not do their homework. A good angel or VC can glean a lot about the team from this 5-minute read. An investor...