Every scalable startup will require external funding. A great team with an amazing idea where there is a clear demand is still DOA without the finances to make it happen.
In fact, a truly great team will integrate future capital needs into their strategy from the very beginning. The question isn’t whether or not you need startup capital; it is whether you get today’s funding with the future in mind (Marathon Investments) or simply meet the needs of the moment by whatever means possible (Sprint Funding).
Most startup funding efforts follow a Funding Lifecycle involving some combination of family and friends, grants, banks, crowdfunding, Angel investors, and Venture Capital firms at different stages of growth and expansion. Progressing through the funding stages from Concept to Mezzanine is a marathon; however, many otherwise high-potential start-ups never make it due to poorly designed deals in the first stages of funding. Agreeing to the wrong terms on Seed Stage and Early Stage investments have the potential to kill future rounds of investment.
Dianna Labrien, offers the following 5 tips to make the most out of your early financing deals:
Don’t give up pro-rata rights to your first investors.
Restrict your share restrictions.
Avoid having too many people overly involved.
Avoid limits placed on management compensation.
Find investors who “get it”.
Viewing your startup capital needs through the lens of your future situation may slow things up a bit today, but will make fulfilling the vision much easier in the long-run.