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Gianluca Valentini gives his advice on how to successfully raise seed capital. He highlights what investors are looking for and two major deal-breakers.
What was your experience? Feel free to share it in the comments, as well as feedbacks or topic suggestions for the next videos!
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This is the first of a series of 10 videos with which we will deal with the different aspects on fundraising. Subscribe to stay tuned!
How to raise seed capital and when should you do it? When is also important, because timing is a crucial aspect of raising capital, you shouldn't raise capital too early or too late.
Preface: the real investors don't advertise themselves. You should get to know them by means of introductions and networking.
Once you get to them: what are they looking for and how can you convince them?
The initial analysis is all based on two main layers of assessment.
1) The first is the trends and the market that you are targeting. Are trends going towards your same direction? Is it inevitable, is it going to happen anyways?
2) Assuming that there is a market trend, an innovation, something that is going to happen that is inevitable, are you the one company that is able to take all that market? Are you going to flourish or perish when you will have a lot of competition? Because if it is a hyped market, you certainly will have a lot of competition. So make sure you show them that you are the best entrepreneur, that you have superior knowledge or superior traction, or a competitive advantage that cannot be copied.
Once both checks have been accounted for, that’s when we enter the "money talks", and it is when some founders may struggle because they have little knowledge about finance or legal terms. So you may argue that convincing investors of your vision is the easy part and negotiation is the hardest one, that depends on the entrepreneur.
Today I will only focus on 2 aspects that are going to be a deal breaker, and how to deal with them.
First of all: how much to raise and how to determine that, the second is when.
1) How much to raise?
This is a very important signal to investors, because if you are raising too little compared to your plan then it will sound naïve. If you are raising too much, then you are going to trigger a lot of questions like “why is this guy or girl raising that much compared to what I think it is a reasonable investment for the plan he as in mind?". So your strategy and maybe even your integrity may be questioned and you don’t want to run that risk when you are building the initial trust for your future investment.
Raising too little is more forgivable compared to raising too much. In the first case you are going to look naïve, but an investor may say, you know, that can happen, it is a misjudgment. If you are raising too much, then that could be a real deal-breaker.
18 months is usually an acceptable runway, and make sure to validate your assumptions in terms of costs.
2) When to raise capital, what is the right timing? You should put yourself in the mindset that you are raising capital for growing your business, which means you are getting the fuel for your engine, rather than getting the engine.
In other terms, capital is functional to your business, your business is not functional to raising capital.
If that is the way you are starting your startup, that’s the way to get it off the ground. Focus on building the business and consider capital as the last piece of the puzzle, as a resource, rather then considering raising capital as the target, the priority of the company at all costs.
It is going to be easier to convince investors if they see that they just need to put more fuel on the fire to make it grow, rather than putting on the capital to build the engine. So again, capital is functional to business, not business functional to capital.