Because of the low yield today in bonds and other investment classes, and competition for deals, valuations of early-stage ventures have been creeping up.
Many would say that is long overdue, but investors need compensation for the high risk of these ventures too. And frankly almost no one can pick mostly winners due to the many inherent unknowns at the early stage of any venture.
This article is an introduction to the financing of any early-stage company across the stages from seed to Series B. The financing landscape today has changed radically with many more options.
Some financing is easier to get but generally, equity financing is hard to get for most companies without a revenue history.
Read more: What Entrepreneurs Need to Know About Raising Capital
We are back to looking like the early 1990s again as everyone has "moved up the food chain" one to two levels. True Series A financings with money designed to develop the product are rare today and most first institutional investments are in companies with proven "traction", this means lots of sales completed.
In the past, there were usually two rounds of financing before this was required, one to develop the product and another to accomplish the first several sales by testing the sales and marketing processes.
Read more: The Financing Landscape For Startups and Early-Stage Companies
Angel Investors (“Angels”) have become a much more important source of capital than ever before. Statistics show they have invested more than VCs in some past years and almost always invest more in early-stage deals. With VCs treating early-stage deals like they have the plague, young companies had better understand and use angel financing effectively. Note that VCs will tell you they do seed and early rounds but 90% really do not. They define “early” as have traction mostly, not funding product, unless there is a serious “done it before” management team that made money for investors before. Then they will always listen.
Unfortunately, angels are nervous that follow-on financing for the round after theirs will not be there and a good investment will go bad from a lack of available capital.
There is no more important decision than choosing the people at the top of your organization. After all, they will hire or approve everyone else in the company, set the tome for values, and make virtually all key decisions that will mean success or failure every business day.
A structured approach to hiring that includes all of the following items must ALWAYS be followed for any senior-level hire (VP and above), where the cost of a mistake can often be a six-figure sum.
Understand the direction in which the Board of Directors wants to take the company over the next few years and how the requisite skills are represented or missing on the current management team.