Let’s start by defining the stages of fundraising. Fundraising is generally broken down into stages there is Friend and family, Angel, Seed, Series A, B, C etc… Early stage is defined as Seed and Series A later stage/Growth stage is B and onward. Angel means someone who is investing their money vs. VC’s who raise funds and invest other people’s money.

So what does all this mean? What does this mean in dollars and cents?

Friends and family is more about stage but usually ranges from $100k-$500k

Angel/Seed ranges from $500k to $3.5 Million.

Series A ranges from as little as $3 million to as much as $6million.

From there the numbers go up. There are also the startups that raise B amounts in A rounds. For now let’s focus on classic early stage fundraising.

To break it down further, you can raise funding at different stages of your startup. These stages, in general, are as follows: There’s pre-product, pre-launch, post-launch (MVP, alpha, beta), some traction, and finally product market fit. This process is iterative and will probably include many twists and turns.

There are different kinds of companies and raising money for them is a different process. There are some companies that generate revenues right away. This allows you to bootstrap your way to product, traction, etc… Some examples of bootstrapable companies are e-commerce, enterprise, and saas. These kinds of companies are more attractive because you're not asking an investor to believe in a vision. You have a business model that's clearly defined and measurable. An investor can extrapolate a worst case scenario and figure out if they will get money back. Then you have companies that can only monetize upon reaching scale. An example of this would be anyone who wants to monetize using ads.

What point am I trying to make? When any sophisticated investor looks at an opportunity at the early stage, they look at these four primary factors. The factors in order of importance are

1: team

2: market

3: idea

4: product.

Team means what have you and the people you’re working with done till now? Have you built a somewhat successful company before? Have you helped an early stage company grow? Have you failed in a fashion that indicates you’ve learned from the past? Of course, you need to be presentable intelligent thoughtful, etc… Traction is also an indication of “team”. Traction can mean many things. It can mean users, revenue, even your ability to recruit and to get out of the catch 22 of fundraising is a traction metric.Even as a first-time founder you can show a pattern that will indicate to investors your chance of success. Investing is all about pattern recognition. If you’re going to raise VC, try to make sure you’re a compelling match to the pattern.

The market has to be big. If you're in a market that is small it won't matter how great your team is. sometimes markets are redefined by the companies. I'm obviously not talking about that. I'm referring to a company that addresses people who are missing their right arm and left leg. I don't care how great your product, market, and team is there are just not enough market size to justify financing.

Idea is a tricky one. Many really great startups sound like a terrible idea. For example Airbnb which today commands a $10 billion dollar valuation sounded and still sounds terrible. Obviously traction will convince investors that your startup is not a terrible idea.

Finally, if you have a product it has to be somewhat compelling. If your product is, for example, a game if the game sucks no one will invest. If you have lots of users ( traction) you again can prove that your product is good . There are of course investors who won't invest if they don't like your product. In all honesty, you probably don't want someone's money if they don't understand and like your product. You have to convince them in any way you can that your product is compelling and you have to believe they believe that.

No matter who you are and what you’ve done till now you have to deliver on promises to be able to continue to raise money. Even if you’ve had a successful exit, you will only get some credit. You will not receive a blank check. Even Elon Musk post Paypal had to write a term sheet to his company Tesla to engineer their series D fundraising to keep Tesla alive. There was a lot wrong with Tesla at the time but still he’s Elon Musk!( Elon also put the first money into Tesla to get it off the ground)

Raising money pre-product with no history, in essence, makes you unfundable. There are always exceptions, but many of them just prove that these pre-product investments for first timers are a terrible idea. Clinkle and color immediately come to mind. You can raise money from angels, but you will want to raise say $250k at $5–$10 k per check. That means at least 25 checks. It will take you the same amount of effort to raise $10k as it will take you to raise $250k checks. The difference is you won’t get the $250k checks unless your “team”/pattern matches.

So what can you do if you’re a Virgin founder and believe in your idea but are building a company that won’t monetize ( so no bootstrapping) until scale? You can simply put, meet people ( VC’s, angels etc..) and then deliver on your promises. It’s very rare where you will meet an investor and get a check. Think of it like dating, very rarely will you have a sustained meaningful relationship after just one date. If you develop a relationship your odds are better. Especially if the investor can watch you evolve.

As an entrepreneur, you have to figure out how to get your idea built no matter what. You have to figure out how to get shit done without money, enough engineers, enough product managers, whatever it is you will never have enough. Startups are like a game of juggling with no arms. As you cross things off the list, you grow arms but there are always more balls then arms.

Thanks for reading. Please let me know what you think. You can tweet me @solfrombrooklyn, If you like the story be kind enough to recommend.