The right time to raise funds?
Founders should fundraise as late as possible so that they can give the startup a chance to survive the initial flux and can know themselves and their business better. While this is not always possible due to financial constraints, founders need to self-finance at least the first three stages of achieving a product-market fit. The first two stages – founder-market fit and problem-value fit should be achieved without the need for external funding. Once the problem is identified along with a probable solution, founders can approach angel investors to build the product team, and validate the product-solution fit with the initial set of customers. Ideally, if the founding team can pool in finances for their firm, it would best be suitable to avoid funding at the early stage, and go directly for an early-round to have more equity, flexibility, and control over the direction of their startup. There have been some startups that have changed their direction on advice from angel investors and fold up – all because the founder raised capital too early. In the case of Business to Consumer(B2C) startups, venture capital is absolutely necessary right from the start to achieve a 5-7 percent week-on-week growth rate. For example, at a pre-product-market fit startup, one needs to clearly articulate the objective of the fundraising followed by key results or milestones that will be achieved over an 18-24 month period. The objective for an angel round is to achieve a product-solution fit. The following could be the key results: Building a product team that defines the main problem and delivers the right solution. Acquire 5-10 customers in the same segment that face similar problems. Achieve NPS of ‘X’ or higher. Calculate, deliver and showcase ROI to customers. Investors continuously monitor the progress of each step of the startup to identify and separate the ‘best’ startups from within their portfolio to concentrate their efforts on. Hence, exceeding the milestones for the early rounds is crucial for the next round of funding.