Along the road from starting a business to (perhaps) getting to the Next Big IPO, one of the more daunting assignments that an entrepreneur will likely face is the process of raising capital.
The task can be decomposed into qualitative & quantitative elements. The former has many parallels with serious dating. Get a mutual acquaintance to make an introduction. Present yourself well, but be sure to also check out what others think of the investor. Remember that you may be spending many years together, often under high pressure circumstances, so if something doesn’t smell right or makes you uneasy, don’t be shy to walk away.
When it comes to the terms & numbers, it’s important to educate yourself on the basics. Know your way through a term sheet. Understand the common financing options you have. Talk to others who’ve been through this before. So when rubber hits the road, you have a mental framework ready to guide the negotiations.
I believe that a helpful perspective is to start with the total capital you expect to need at multiple points over the next few years to get your company to where you want it to be, and then back into an appropriate valuation range for today. A useful simulator for visualizing this analysis can be found here.
