Hammer pants. Frosted tips. Fanny packs.
Some of you bought into these flavours of the month. Others, well, lucked out. At one time, for better or worse, following these ‘fads’ meant you had your finger firmly on pop culture’s pulse.
No ad to show here.
Because they come and go at a moment’s notice, trends get a bad rap. But being trendy can serve a broader purpose. Trendsetters and followers are looked at as experts and generate buzz wherever they go.
That’s the aim of every cash-strapped startup: to garner enough attention, credibility, and cash to live up to its potential.
Where the funds flow
According to Statistic Brain Research Institute, 46% of startups fail because of funding issues. So startup owners shouldn’t just monitor their internal expenses. Knowing which way the fundraising wind blows is vital to stay on the good side of that failure rate.
Despite doubts surrounding startup valuations, venture capital firms raised US$12-billion last quarter, which represents a 10-year high. What exactly contributed to that record sum?
1. Series A shakeups
Its been an interesting few years for Series A funding. With the line blurring between it and seed funding, Series A’s fundraising role is in a constant flux. And despite a steady increase in Series A valuations, signs are pointing to a Series A crunch.
Startup companies are being held to a higher standard than usual, so a realistic view of the time and money your company needs will be vital to investors. After your angel round, you shouldn’t hesitate to start planning your Series A round.
Take advantage of your network, and start targeting VCs early. A proactive approach can greatly influence a company’s valuation and legitimise your operation in the eyes of investors.
2. Anxious investors
Some institutional investors are looking to invest earlier than ever. The amount of capital necessary for a company to invest in a startup depends on factors such as product and business size. Your goal should be to make your startup not only noteworthy to VCs, but also viable.
Going into the Series A round with a viable game plan is crucial. Founders should approach this step as if it’s a sale: Start six months in advance with a detailed list of VC targets, and determine how you can leverage your network to generate an introduction to those targeted investors.
Having a firm grasp on the funding process is a big plus. Most VC firms approve funds through partner meetings, so you should understand not only how to get yourself in front of investors, but also how to close the deal.
The days of hundreds of thousands of dollars falling into founders’ laps are over. Even as investors are looking to get into a company even earlier, they are focusing on founders who can speak clearly and concisely about company financials, milestones, and the market.
3. The funding options less travelled
Series A and seed rounds aren’t just being altered; in some cases, they’re being bypassed. The emergence of alternative funding avenues for startups gives founders more options to collect what they need in order to help their businesses bloom. Those choices include:
- Convertible notes and convertible debt: These allow investors to make shorter agreements. Convertible notes essentially function as IOUs that repay in stock rather than capital. Notes are loans from a VC or an angel investor. The capital gives startups the chance to offer equity while delaying its specific valuation of that equity to a later date.
- SAFEs: Simple agreements for future equity can only be offered by incorporated companies. While they don’t guarantee returns, SAFEs allow for quick, flexible negotiations.
Knowing the fundraising options at hand is vital for startup founders. There are countless businesses out there trying to finance their own big ideas. Founders who stay on top of the various funding sources (and how to tap them) will be best positioned to take advantage when it comes time to raise funds.
Being able to apply your knowledge about these trends will play a large part in determining the success of your startup. When faced with crucial fundraising opportunities, simply ask yourself, “Have I taken all these things into account?”
Feature image: Michael Coghlan via Flickr.
