Starting a new business and seeking venture financing can be a daunting prospect, and attracting investors can be a harrowing adventure. A startup in this position no doubt has a great idea, is looking to offer the world a solution, and is plunging forward into new frontiers and into the unknown.
Once a firm has tested its model of operation and has successfully courted a venture capitalist, it can expect to experience some changes after the fact. This is because there are, typically, multiple rounds of investment.
A Business Can Now Ask for More Money
In the first phase of courting investors, a new firm will need to undergo a valuation and demonstrate their concept’s viability. After the first monies come in, a startup may be able to expand their clientele base and can begin scaling their operations.
When these things occur, a company can increase in value, and the venture will need to undergo a valuation to assess where they are at this stage of the journey. This is necessary so that when the business seeks to inquire for further rounds of investment, those providing the funding can accurately assess where the business is at that point.
The probability of success continues to grow as more money comes into the firm, and with each subsequent round, there is more evidence with which to secure even more money.
The Business Will Change Structure
A startup that was operating on a shoestring budget will likely not have had the capital to employ many people, but as revenue starts to stream in, the capacity to employ people can increase. As the company begins to onboard employees, time will be spent developing, training, and adjusting to the reality of a bigger team. Some ventures may even need to find larger offices from which to conduct their business.
A larger workforce means that firms will be able to produce more product and that they will be able to meet the demand for their services more effectively. They may need to procure legal help and also make sure they have the insurances to be adequately protected from lawsuits.
More Research and Development Can Happen
An intriguing concept is what fuels the initial momentum and excitement of a startup, and after that first round of seed money comes in, founding members can then go and perform testing and market research to try to confirm assertions they have made.
A proof-of-concept can also be established, and this is the evidence that demonstrates that a particular idea or proposal has feasibility. Once this has been attained, securing additional funds can prove to be easier.
The terms of future investment will likely change as the company shows growth, and investors who want to maintain the same level of ownership will need to continue to invest in subsequent rounds of funding.
The earliest financing can oftentimes come from relatives and friends and even angel investors, and once monies have been sewn into the company by investors, the financial burden can be removed from these close contacts. The business may also now be able to move into an office instead of using somebody’s garage or a spare bedroom in their own house.
Appraisals can be made by third party contractors, and things, such as the worth of intellectual property, and deal structure will also need to be estimated. It will also be expedient to establish core values for the company culture so as to inculcate them in new team members, and leadership can try to develop plans for their product or service’s expected-time-to-market, approximate profitability stage, countering foreseeable risks, and determining the volatility of the market.
Fidelman & Co. specializes in management consulting, presentation advisory, and financial modeling. We focus on building businesses alongside entrepreneurs and investors. Contact us today for more information about what we can do for you.