
How to raise capital for your early stage startup?
Many entrepreneurs have hit a roadblock when it was time for them to raise capital for their startup, yes it can be a very difficult and along process, however it does not have to be. It can be made timely and relatively painless if you understand the market and its participants.
Friends and Family
First you have to know when you should be raising capital and from whom. Usually in the initial stages of a startup a founder or co-founders put some money into the company to get started, then they usually ask their family and friends to invest in the company as well. The goal at this stage should be to create a Minimum Viable Product (MVP) and get some users/clients who want to use the product and keep coming back.
You have to get comfortable asking your family and friends for money and disclose all the risks, make sure that they understand that they can lose their entire investment in your startup. Start by just telling them the story and what you want to accomplish and how, and let them decide if they want to make the bet on you and your idea. Usually at this stage most startups are looking to raise $50 K to $100 K.

Angel Investor
Once you have your MVP and have some users you want to start talking to Angel Investors. These investors usually invest from $50 K to $500 K to help the startup move forward. Sometimes it can be just one Angel Investor or it can be several.
To make this process easier you have to understand what investors at this stage are looking for. Usually they want to meet a team that they believe can execute, someone they can trust and someone who is coachable. A lot of the times they are looking for ideas/products that are scalable, they want you and your team to really understand your market and competition, be able to tell your story, have realistic expectations and projections — one year projections are usually sufficient at this early stage, have a strategy and tactics, be laser focused and have a marketing plan. The most important detail here is focus — don’t try to be everything for everyone, be very focused, employ just a few tactics and get better at executing.
While telling your story to a potential investor or investors you have to make them believe that they can not afford to miss this opportunity, they have to feel that you are the person who will take care of their investment and help it grow.
At this stage don’t try to raise more than you need. If you have a sound concept and a marketing strategy you should be raising capital to get more users, learn about increasing their engagement and making some upgrades to your MVP. The most common form of investment by Angels is usually in the form of a convertible note, however it can take many different structures.
The idea behind a convertible note is that you just don’t have enough yet to have a proper valuation so the Angel Investor will be converting his note into shares at a later date when a new investor steps in and there is more information on a potential growth of your company.
Convertible notes usually have the terms which will include a ceiling, a maximum valuation at which the note will be converted, usually it’s in a range of $2 Million to $4 Million, however it can be any value depending on many factors. The note also usually has a discount rate that can range between 20% and 30%.
So for example you get a $300 K investment from an Angel Investor with a ceiling of $3 Million and a discount of 25% and at the next round your company’s valuation is at $4 Million. The conversion will be: $3 Million discounted by 25% is $2.25 Million, then $300 K divided by $2.25 Million and times 100 is equal to 13.3% Equity stake in your company for an Angel Investor. However your new valuation will be $4 Million plus what the new investor puts into the company (post money valuation).
When choosing an Angel Investor it’s imperative that it’s a good fit. First make sure that both of you have personalities that don’t collide, you share a vision, even though he might be more experienced and see better ways for you to move forward. It always helps if the investor knows your industry well and has contacts in the industry.
Venture Capitalist
Currently we have seen a number of Venture Capital firms that want to get into startups early and make investments just as Angel Investors. So it always makes sense to start talking to Venture Capital firms early, even if they don’t make an investment at a very early stage, they will provide you with some feedback and get to know you, which might lead to an investment at a later stage.
Incubator or Accelerator
Incubators and Accelerators can also be a way to move your company forward. Two of the most known incubators are Y Combinator and Techstars. They invest in early stage startups, it can be one round or multiple rounds. They also provide knowledge base through classes and mentorship support. AngelPad is probably one of the best. Even though in today’s world the lines between an incubator and an accelerator can be fuzzy, accelerators usually get involved at a slightly later stage to help you scale your company and their programs are shorter in duration.
Family Office
Family offices might also be a good source of funding for your early stage startup. More and more of the family offices are getting involved with startups at an early stage and we have seen this trend really increasing in the last few years. Now it’s really easy to find them. You can just send them a connect request on LinkedIn and then just download their email to contact them directly.

Fortune 500 Company
Fortune 500 companies and other more established companies also might have an interest in your company. They might be interested in helping you develop your technology so it can later be used by them or it can be a pure investment. Some of them have created incubators inside of their organizations and even share their staff and resources. Before approaching them do an in-depth homework on their investment criteria and follow their application process.
We strongly recommend creating a folder with all the documentation on the company and it’s founders before you begin your search for an investor, so when they become interested you are ready for their due diligence process. One important piece that should not be missing is a formal agreement between partners and how the company is to operate, if you don’t have them, we strongly recommend talking to an attorney and putting them in place.
Negotiations are always a part of getting the deal done. It’s very difficult for most entrepreneurs to really understand which parts of the offer should really be negotiated, that is why we strongly recommend getting an advisor or/and attorney to help you. Investors want to see a reasonable and knowledgeable negotiator, not somebody who is just driving them crazy. They also don’t want to see someone who will not negotiate at all.
Once you get an investor on board and get the funding, keep in mind that this is just the beginning. Make sure that you develop a really good relationship with your investor, communicate often, don’t be afraid to tell them when things are not working out, ask for help if you are stuck. On many occasions investors are really great mentors. They know that you most likely will be in a place where you feel that you are failing and they can provide the support needed to keep you going.
For more information please contact New Logic Technology at info@newlogictech.com.
About newlogictech.com — We advise startups on how to become successful by introducing you to the right investor, helping figure out strategy, tactics, marketing, developing websites, developing mobile apps, developing software, how to build your team, how to scale your product and how to become more efficient.
We look forward to hearing about your startup.
