A Successful Exit Starts With The First Capital Raising
Most people focus on the valuation and how to find Investors, but there are other more important factors.
Four steps to building a successful capital raise
- Understand your investor investment model. Differences exist between Family & Friends, Angels and VC in terms of returns and timescale.
- Understand your potential Exits. There are exit windows for each business. Each window drives a different exit.
- Capital structure and valuation. Details around the structure, liquidation preferences, Notes vs Shares will drive different investors returns. Be sure you can enumberate each one.
- Finally, build the company plans around the above.
Exits are where the investment returns are made.
The reason most startups cannot secure capital is that they have not proven that the business can make money.
In almost all cases you will have to get started by funding your startup from your own pocket. In the US there are reports of startups raising investment at the idea phase or after developing a very rough prototype, however that doesn’t happen very often and almost never happens in Australia.
Professional investors will need to see a much more than a great idea to make an investment decision. You need to be able to quote (and have evidence for):
- Revenue (or Monthly Recurring Revenue if you have that)
- CAC (cost of customer acquisition)
- LTV (lifetime value).
That means that you need to have Revenue.
So if you don’t have revenue, don’t bother with the professionals,
approach family and friends to get to revenue.