How to prepare your capital raising in 2022 - A brief guide
The creation and growth of a startup depend largely on financing, especially in the early stages, since its survival depends on this. “According to the 2019 Economic Censuses, the life expectancy of businesses in Mexico was 7.8 (a figure that varies based on the sector); and The Center for the Development of Business Competitiveness revealed that 8 out of 10 Mexican companies fail during the first 2 years of existence ”. So it is a premise that once the company is launched sooner or later it will require raising capital.
Based on this, as specialized personalities in startups, we give you this little guide for you to consider before raising capital in 2022:
Although we use bootstrapping FF&F or bank loans, these contributions are sufficient for the early stages, but as it matures, these resources become insufficient for the development of the company. That is why companies go through capital-raising processes to raise funds.
There is a situation that you will face especially if you are a novice in this subject, you will realize that the funds are heterogeneous. Each one has its own investment thesis, which forces companies to distinguish them depending on the stages of maturation in which the companies are mainly to approach each of them.
A meeting with a VC fund is a kind of round table where investors who want to contribute capital and entrepreneurs who are willing to give up a share in exchange for those resources converge. Basically, it is an exchange through a negotiation process on the price at which the shares will be acquired, with what instrument, company valuation, capital will be contributed.
As an entrepreneur, you should know what types of series of rounds exist: pre-seed (or pre-seed), seed, series A, series B, series C...
The pre-seed series and its investors: It happens at the beginning of the project, funds are required to start the project, product or service development as well as commercial planning, hand in hand with the business model. It is essential that, given the findings found, entrepreneurs pivot and evolve according to the limitations and needs of the market.
The resources are used for market research, manufacturing of prototypes, some legal expenses, if applicable, the filing of patents; For this, investors are sought: family, friends, angel investors, the same entrepreneurs through their own resources, even at this stage bank loans can be considered but personal, since it is very complicated for financial institutions to give resources to companies that even, they may not be incorporated or generating income.
The seed series and its investors:
Once the company is carrying out its first activities, the business model is alive, the first users or clients, new material, financial, and human needs are triggered, which denotes the requirement of more capital.
If you are an entrepreneur at this stage, consider raising capital as soon as possible, when a company does not have the means to develop it can be detrimental, since the field is left open to competitors who will occupy a place that may never be recovered.
At this stage, consider business angels, seed funds, or some private investors as investors, you can also consider banks, although it is understood that if you are already in a better position, look for as little debt as possible with the bank.
Series A and its investors
Usually, these rounds of capital raising are focused on investing in the scaling of companies, therefore, the amounts are greater than those requested in the first stages. In this stage, the founders must prepare themselves in advance, you must demonstrate traction, your unit economics, that you have a market, that the business model is successful and that it works, and that you are naturally prepared to scale.
The evolving solution must be prepared to grow big, even transcend borders. These types of rounds could take a little longer, as they require much higher amounts and you can get it from more than one fund. Your investors usually venture capital funds, that is, they are no longer people with small contributions, but rather investment vehicles
Series B and its investors
The concern is no longer focused on product development, but on having a greater market reach. Usually, a B round is used to grow the company both inside and outside to meet those levels of demand, that is, expansion is sought. For this, resources are required to complete a star product for the market, to grow the team, so resources are required to acquire quality talent; Major investments are sought to boost business strategy, sales, marketing, technology, etc. At this stage, the companies are perfectly established.
Financing strategy
Before raising capital, it is important to promote your project, look for catwalks, spaces where you can make a pitch, make yourself known, do public relations. Likewise, it defines a plan and a financing strategy. This will definitely give you a good chance of convincing yourself that you are a good opportunity.
In this stage, much more objective information is collected from investors, hard data, it is not only important if your team is a good entrepreneur or if you have a good business idea; but how many users you already have, if you have already started generating income, among others.
Also evaluate your financial needs very precisely, according to the needs of the stage to reach the next milestone, do not ask for more or less than what you do not need. And always keep in mind the runaway so you can prepare your next round in advance.
Once you have these visible elements, then go out and find your next investor, make sure that 2022 is a year in which you close that round of capital that you are looking for so much.
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