Raising early-stage venture capital can be a crucial step in the growth and success of a startup, but it’s also a big decision that requires careful consideration. Early-stage founders, in particular, need to be well-informed and prepared before they pitch to investors.
Here are 5 key factors that early-stage founders should consider before raising venture capital:
1. Early Stage Venture Capital may not add value beyond money.
VCs do pitch themselves to founders by claiming to add value beyond capital. But a lot of VCs are unable to add any value beyond money. It’s OK. This is not a bad thing but just know this.
2. Early Stage Venture Capitalists and Angels are VERY different.
Angels are people. VCs are financial partners.
You can build friendships with angels regardless of whether things are good or bad. VCs may only remain friendly till things are going great. Treat your VC as a financial partner and not as a personal friend. That’s just the way it is. It will keep things in perspective.
3. Valuation is NOT everything.
Don’t fall for term sheets with high valuations. Optimize for valuation AND control. High Valuations come with lots of gotchas (blocking rights, anti-dilution rights, etc.). You must have your lawyer review any term sheet before you sign it. Also, look at publicly available term sheet templates like YC’s Series A template.
4. Board Management is an art.
Once you raise VC, you will likely have a board of directors. Here are three things you must do as a founder; (i) send a board deck 1 week in advance, (ii) always call each board member before the meeting and hear their concerns so that you don’t get taken by surprise in the meeting, (ii) if you don’t have a plan of attack yet to solve a significant problem, then just focus on letting the board know with confidence that the plan is to make a plan.
5. Keep your board small and nimble in the early stages.
In the early days, keep a small and efficient board. 3-5 people. Founders, lead investors, and one independent. Keep it small as long as you can. It will help move decisions faster. Typically, the lead investor gets one board seat, follow-on investors only get an observer seat (avoid too many observers). No need to give up 2 board seats in one investment round.
Before you go out to raise venture, ask yourself if this is the right time. Here’s an article I wrote on when to raise venture capital.
Do you need help with your investor pitch?
I’m offering 1on1 pitch reviews: Using the exact system I used to raise ~$7M in venture capital, I will help you craft a winning pitch. Once you send me your deck, I will give you detailed written feedback in a google doc. Then we will schedule a 60-minute 1on1 session where you can practice your pitch with me and we will go over my feedback to answer any questions you might have. To get your pitch reviewed, click here
