Business Magazine

How To Match Your Startup Stage To Investor Interest

Posted on the 13 August 2016 by Martin Zwilling @StartupPro

funding-presentationTime is too precious to waste trying to close a deal with the wrong investors at the wrong time. Luckily, not all investors are looking for the same thing, so it pays to know what type of investors are most interested in what your startup brings to the table.

The key is understanding how potential investors see you, and especially how they view the maturity stage of your startup. For example, if you have a proven product, real revenue, a big potential market, and are ready to scale up the business, every investor will be interested. On the other hand, if you are a new entrepreneur, still in the idea stage, professional investors will only tell you to come back later when you have traction (customers and revenue).

Thus your startup maturity and growth stage is the primary key to success with potential funding sources. Different types of investors tend to specialize in capitalizing on businesses at different stages. Venture capital firms look for the most mature companies they can find, Angel investors typically deal a tier lower, while friends and family are most likely to help you get started.

It never hurts to start networking personally with all levels of investors early, but sending out teasers and business plans to every name you can find on the Internet is a waste of your time and theirs. It will be much more productive to categorize your startup in one of the following five stages, and limit your investor focus accordingly:

  • “I have a great idea and I need money to turn it into a business.” For investors, this is the idea stage, where you may have a great idea, but no plan, product, or customers, and probably no success record in this business domain. No professional investor will be interested at this point, so count only on yourself, friends, family, and fools for money.
  • “My invention and prototype works, but I need funding to continue.” Investors call this the seed stage, where money is required to build a market and a real product. Government grants and industry partners are you best bet here, but Angel investors might give you $250,000 to $1 million, if you have the right business case and credentials.
  • “The final product works great, and all the early users love it.” You are now entering the rollout stage, with money required for marketing, hiring a full-time team, and a production process. At this point, most Angel investors and a few early-stage VCs will be happy to talk, assuming you have the business model validated, and a large opportunity.
  • “It’s time to scale up and I need money to keep up with demand.” Congratulations! Every investor wants to be part of your growth stage, after your first $1 million in revenue. They call first investments at this stage the “A-round,” and often follow with a B-round through G-round. Growth stage investments from VCs are usually $5 million and up.
  • “The ride has been fun, but I need my money out to start the next big thing.” This is the exit stage for the entrepreneur, and for all earlier investors. The new investors you need at this stage are investment bankers, private equity, or competitors, to buy you out via merger or acquisition (M&A), or to go public with an Initial Public Offering (IPO).

Obviously, maturity and growth are a continuum, so the rules are never absolute. My message is that your startup will attract a different class of investors, as it passes through each stage, just as it has to supplement and tune the team, process, and product to keep up with the needs of a growing company and customer base. Tune your investor pitch and funding expectations accordingly.

Another good indicator of your real stage is the valuation you can set for your company at any given moment, to determine what portion of your equity an investor will expect of his money. Prior to the growth stage, your company valuation is limited to goodwill based on intellectual property and team experience, since you have no revenue. Future opportunity size doesn’t count in the early stages.

Contrary to popular opinion, all investor money is not the same. Friends and family believe in you, and only want to see you achieve success. Angel investors probably will know your business, and want to me mentors along the way. VCs normally come with the highest expectations of board seats, controlling votes, and milestones to meet.


You Might Also Like :

Back to Featured Articles on Logo Paperblog

These articles might interest you :

  • Video: Antarctica in 4K by Drone

    We've seen drone footage from a number of spectacular locations around the world over the past few years, but I'm not sure that Antarctica was amongst them. Read more

    The 21 June 2018 by   Kungfujedi
    OUTDOORS
  • Metamorphosis

    Metamorphosis

    by JivanaBy Maria Sibylla MerianThe monarch butterfly spends two weeks as a caterpillar before metamorphosing into a butterfly. Read more

    The 21 June 2018 by   Ninazolotow
    FITNESS, HEALTH, HEALTHY LIVING
  • Top Rated Legal Steroids

    Rated Legal Steroids

    Legal steroids have hit the fitness world by flooding the market with fake claims and inferior products. So, we have written this article to separate the B.S an... Read more

    The 21 June 2018 by   Leesteve19
    SPORTS
  • Web.com to Be Acquired for $25 a Share Or $2Billion

    Web.com Acquired Share $2Billion

    Web.com the company that owns Register.com and Network Solutions is being purchased in an all cash deal worth approximately $2 billion. Web.com acquired... Read more

    The 21 June 2018 by   Worldwide
    BUSINESS, TECH
  • Three Golf Lessons Learned from U.S. Open Mistakes

    Three Golf Lessons Learned from U.S. Open Mistakes

    For those fans who stayed glued to their television sets during the 118th U.S. Open at Shinnecock Hills, the golf tournament proved exciting with lessons to be... Read more

    The 21 June 2018 by   Golfforbeginners
    GOLF, SPORTS
  • Fortnite, Snap Streak, Instagram and Other Summertime Addictions

    Yay!!!!! School's out for summer!!! I was shopping at my little neighborhood grocery today and bumped into one of my neighbors. I asked when her kids were done... Read more

    The 21 June 2018 by   Joanigeltman
    FAMILY, PARENTING
  • Summer Fashion with Lucky Brand

    Summer Fashion with Lucky Brand

    Today’s post is sponsored by Macy’s but all opinions are my own. #MacysLucky Winter seemed to drag on forever and it feels like we went directly from winter to... Read more

    The 21 June 2018 by   Thesamanthashow
    LIFESTYLE, SELF EXPRESSION

Magazines