Raising capital is an intensive process for founders, one that takes significant time, energy and perseverance. However, with enough research and an effective plan, founders can save time and improve their chances of success.
One important step is identifying who you might want to invest in your startup. By focusing on investors whose interests and expertise align with your startup, you can tailor a pitch more effectively, build stronger relationships and gain strategic support. Often initial investors act as advisors or mentors to a startup, so it can be helpful to pinpoint investors specializing in the same sector, region or stage as your company.
An investor’s expertise can help fledgling startups handle the numerous hurdles that come their way, such as hiring and retaining key personnel and growing a customer base. They may also have a network of connections who could be future investors or customers.
Lead investors
Typically, each new (outside) funding round has at least one lead investor who provides the largest portion of capital. Founders should be thoughtful about who they select. Lead investors can potentially join the startup’s board and be involved with the company for a long period of time. A reputable lead investor can also provide validation and serve as a positive signal to other investors.
Early on, founders should plan out how much funding they want to raise in each round. This means taking into account key development milestones within each phase. Securing enough capital to fund the company for 18 to 24 months is typical. Related, founders should also consider how much ownership they are comfortable transferring to investors in each round. The chart below shows the median percentage acquired by investors by round. Note, not all startups will raise a seed round.
