In our previous blog post we discussed the benefits of a corporate shield to facilitate growth and maximize protection. As a startup, your choice of entity depends a great deal on your realistic short-term and long-term finances.
Are you seeking outside investment?- Are you able to bootstrap and generate revenue?
- Are you in debt or have you taken out a bank loan?
- What type of investor are you looking for and can they add value outside of capital?
There are many established ways of raising capital – the predicament is now choosing the most lucrative and fitting type. Before you approach investors, here are some characteristics and observations that have ultimately been the backbone of startup success:
Be: Transparent and Passionate.
Whether you’re communicating with your own team, potential investors, accountants or attorneys – you must always be transparent. Attorneys and accountants cannot help you if you’re not honest and completely open about your past and current business affairs. Being fully committed and passionate is a distinguishing trait in the eyes of investors and attorneys. If you’re the startup founder, find a way to instill that hunger into your team and business advocates[1].
Adversity is inevitable. It’s the determination to overcome it (and the passion to commit) that will push the business forward and attract capital.
Take advantage of the many free online resources and consider the inexpensive opportunities: researching the competitive landscape, filing for a trademark with the USPTO, acquiring domain name(s), and consulting with various attorneys, accountants and investors.
Know: The Basics.
If you’re seeking investment, focus on two messages:
Elevator Pitch: A 30-60 second breakdown of your business and how it will be successful. The ability to convey your business message in such a short time span will demonstrate your commitment and will serve as a gateway to legitimate capital-raising interest.
Investor Pitch Deck: Perfect your business plan/pitch deck which should be in the area of 15-20 minutes and 10-12 slides/pages.
Angel/Seed: If you are committed and in the process of building out your business then look to angel investors to help you get your startup off the ground. Reach out to your network and put together a prioritized list of potential investors.
Revenue Share Models: A traditional startup usually does not qualify for revenue-sharing but it’s important to understand this concept if you’re able to receive other investments early on or even bootstrap until you are able to turn a revenue. There are many benefits here, such as: avoiding outside investment and retaining control and management over your day-to-day affairs.
Crowdfunding: Is your particular product/business well-positioned for a crowdfunding campaign? There are different types: A reward-based crowdfunding campaign (i.e. Kickstarter) or an equity-based method of raising capital (i.e. Crowdcube)[2].
Startup founders need to familiarize themselves with the fundamental differences of offering equity and/or offering options; common vs. preferred stock (preferred stock usually carries payouts via dividends & liquidation preferences that may adversely affect common stock owners). It’s critical to know your competition in and out – who’s successful and why they’re successful – what other companies in the industry have failed and why have they failed. And finally, what differentiates you?
Understanding your business and its position in the market will allow you to craft your investor pitch deck and pinpoint your best source of revenue and type of investor. Conquer this and you are well on your way to startup success.
[1] AngelList (angel.co) is a great resource for finding good partners, investors & employees.
[2] Other powerful crowdfunding services: IndieGogo, GoFundMe.
The attorneys at De Leon & Washburn, P.C. are available to assist clients with corporate formation & governance. For more information regarding the firm’s services, please visit our Practice Areas page, and please feel free to contact the attorneys at any time.
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