Tech.Co selected the top 10 questions startup founders ask investors, followed by advice from the investor:
- On the Right Time to Raise Capital McDermid explained that the time to raise capital is when the startup is “ready” to execute a process. The challenge is determining when you’re “ready.” In the best case scenario, McDermid suggested that in determining when to raise capital, three criteria are true:
- On Asking Investors for Specific Valuation
- You’ve achieved the necessary milestones to get the valuation you think you deserve.
- You’re thoroughly prepared to deliver a knock-out pitch and efficiently respond to requests. According to McDermid, asking for a specific valuation can be a risky strategy.
- On How Much Capital to Raise When assessing a “valuation ask” by an entrepreneur, investors also consider implicit signals like the proposed size of the raise, the price of the last round, the total amount of capital raised, and the number of rounds of capital raised. Founders to be strategic about the amount of capital raised, not least because of sensitivities about dilution. In investor jargon, “tweener” is a polite way of saying your valuation expectations are too high for the financial or operational traction you’ve achieved so far.
- On Investors to Target The most important thing to focus on here, explained McDermid, is finding investors that are appropriate for the stage of the company.
- On the Amount of Investors to Approach Find a balance between efficiency and high probability of success.
- On the Time it Takes to Raise a Round The advice is to be prepared for the process to take longer than expected. 7. Sharing confidential information with Investors 8. On the Financial Model for Investors 9. On Raising Debt Instead of Equity Debt can be a great source of capital when used appropriately. It can dramatically lower the overall cost of capital and provide a lot of financial flexibility.
- On What Happens if Market Conditions Change McDermid advised founders to always have a backup plan. Read all 16 questions and answers here.