Funding Rounds?

Every investor has their preferred stage of the startup when investing. He/she has their preferred risk levels to take. So unless you would like to get some advice from the investor, make sure you choose the one suitable for your startup’s needs before approaching. 

As a general rule of thumb, we can estimate that with every following funding round some risks must be eliminated. 

The first obstacle to overcome is the trust issue – meaning that the first ones to trust you the most – friends, family and fools, make up your initial funding. 

The second risk is with the product.In this case you’ll need some angel money and advice for the pre-seed round.

Third is the market risk. Here comes the seed financing to help prove that there is a market for your product – this round is forsuperangels and early stage VC funds.

Then comes the A – round to clear the Scaling problem. Now the startup proves, that their model is suitable for many markets. That’s where some serious VCs come into play or at least start monitoring and showing their interest.

After that, the B, C and future rounds accelerate the growth. 

See Ivo’s full presentation here:

Who or what is a startup?

Only some businesses are eligible for angel and VC financing and the key here is the scalability of the business. If your business is carwash by hand or anything else where revenues can be doubled by doubling the workforce, then this model does not work for a professional investor. 

If you are running a traditional business, then It is very important to find the scalability model to find an investor. It can be outsourcing of the manufacturing or adopt a franchising model for a restaurant chain. 

Investors take high risks, when investing into startups, paying for the hypothetical future values, which are sky high when compared to the already established businesses. This only makes sense, if the business model is scalable and there is enough market to grow the business. 

And do not forget, investors are there to make a return. If you do not get the financing, the problem is not the investors but the chosen business model or the team. 

See Ivo’s full presentation here:

Who is the Lead Investor in Angel Rounds?

TThe probability of the startup’s success increases with every new stage of financing. Therefore the risk of failure is immense and decreases in time. Hence the early stage investors make tens of investments in hopes of a good return from a few stars to cover the losses from the other investments.

Experienced investors never put all their money into startups, maybe only 10-20%. Therefore each investment may only count for 0.1% to 1% of the total wealth of the investor.  Angel Investors have their own money in the game and they only invest in two cases:
1) when they trust the person, which can be lead investor or
2) they trust the institution (VC, crowd funding platform, etc).

As a startup founder, you must first win the trust of the lead investor and then things start rolling.

See Ivo’s full presentation here:

It’s the exit business. 

There is a reason, why investors invest in scalable businesses. The reason is in the name — Investor. Investor invests to get the money back with a hefty return. Without the return, giving out money is charity- and generally investors are not doing that for business purposes. 

The return for the investors can be earned in many ways like dividends, but the most common is selling the business- the exit. 

When building a startup, you must build a decent business and also be prepared to sell it when the time comes. 

But If you love it too much and don’t want to sell, forget about the investments as well. Same way as the investors, who are in the exit business, you must be too. 

See Ivo’s full presentation here:

Show the results

Investors can quite easily pinpoint the startups that will never succeed – mostly because of team issues, or market, product or something else is to blame. And they are generally right.

But out of good startups which seem to have everything in place – it is nearly impossible to find  the correlation between some indicators and those that will be successful. This is why the investors build portfolios consisting of 20-30 early stage investments.  

Although the initial traction often does not guarantee a good growth-rate in future, it is still very important for the startup to have and to maintain good MoM growth rate. 

This often is the main criteria for evaluating your startup. Therefore the notable  growth-rates and traction make raising money much easier.  

See Ivo’s full presentation here:

Have a team

Founder only has 24 hours in his day as does every other person on this planet. At least 6 hours is needed for sleep and another 6 hours for all the other stuff – this leaves 12 hours for the creative work. 

But however talented YOU, as a founder, are, you still have those 12 hours and no more. Time runs with the same speed for everyone. To build something really meaningful you may need 1000 hours to 10 000 hours. 

If you do it all alone, then best performing teams do it faster than you, leaving you behind.

That’s why well functioning team is important. 

There is another factor. Humans are social animals. They only function properly in the team setting. The team may be family, friends or workmates, but when there is no team at all, things start falling apart.

We need reflection of thoughts and ideas, as well as support during tough times.  People need others around them who they can trust. Without the support, the social animal does not function anymore and starts drifting away. Plainly said – they go crazy.

When meeting investors, always bring your team. The investor will witness the team work, if there is trust between them and also in which way the team members complement each other.

See Ivo’s full presentation here:

Corporate governance and reporting

There are widely accepted set of rules how companies must be managed: accounting rules and governance regulations, and some unwritten rules about how things must be done. 

These things are the result of several hundred years of doing business and there is hardly much innovation in this that can make you outlier. If you do not follow these practices of accounting and corporate governance, then your startup is just bunch of people playing around with some ideas, and in worst case criminals, who do not pay taxes. 

How do investors think? If founders are unable to follow simple regulations, how are they able to successfully run a business? Can I trust my money with those founders who are not able to keep up with planning, reporting and accounting?    

So even if you are the brightest genius, you must still follow the basic business principles.

See Ivo’s full presentation here: