As a serial entrepreneur and having gone through this startup process a few times, I believe you get your funding at the exact moment you deserve it. With a flying start, it will look easy, but as time passes, you business has to keep up with the changes.
In the beginning, as a confident founder of a tech startup and armed with a potentially world-changing idea, you put your own money into a prototype. A short while later, eureka! The minimum-viable product works to serve its purpose elegantly and now the world is your oyster.
The Start of Something Great
With a little publicity by putting a freemium product on the market, the eyes of the world are upon you. Bloggers like it, users flock to it and, ultimately, prominent media picks it up. The feeling of being watched and admired is thrilling. Everybody in the scene knows your name, has tried your product and wants to collaborate. Potential institutional investors line up meetings while angel investors commit small sums. You feel relieved.
Three months in, you think it was a piece of cake. Next up, you have multimillion-dollar valuations and raising a major chunk of change in series A. You’ve made it big.
Yet the feeling is fleeting. The 15 seconds (not even minutes) of fame is gone as the fickle technology press editors move onto the next big thing. Investors’ interest wanes as hits on your site fall back to its regular pace. With no more buzz and just a little more cash than you started with, where does this leave you?
Entrepreneur vs. Investor
You still need to do a deal and you need to close it rapidly before no one is interested anymore. Here is the ideal situation of how deals will be done in perceived company value over time.
At the beginning of negotiations, there is always the huge discrepancy of valuations between the entrepreneur and investors. Obviously, the entrepreneur is trying to pump up the company’s worth, while investors are looking for a cheap buy. No deal will be done at this point. Negotiations begin.
This series of negotiations will take time, with cash reserves burnt to finance operations as time goes by. Consequently, the entrepreneur gets more desperate and, realistically, will have to lower expectations. The tipping point would likely be 50 percent off from the initial starting point.
This intersection between entrepreneur and investor valuation is usually done within 6–12 months. After that, investor interests will plummet and no matter how much lower the valuation, the entrepreneur will not a get a deal again.
To get that deal within the time frame needed to move your business back to the express track, you need to work even harder and have a flexible mindset.
You have to be patient in the volatile world of tech startups. As the global economy slows to a halt, investors aren’t dishing out funding like they used to. They are playing the long game. You will have to play along.
Also, your valuation of your company is always significantly higher than that of reality and investors. Lowering valuations can make the company more attractive to investments.
If your company can strongly continue operations into the next round of funding, the company valuation will easily return to what you desire.
Stay alive long enough to show your worth and traction. Do whatever you can to make revenue; pivot if absolutely necessary. By simply existing and making necessary changes, you will show investors of your company’s potential.
Besides selling your product/services widely, sign up partnership agreements with major players and clients to make revenue. If you can offer a complimentary service to large conglomerates, their reach will bring your business far and wide. This further adds on to the potential and will let your startup live to fight another day.
Get press coverage whenever and wherever you can. By increasing your personal and company visibility, it shows your relevance in the market to potential investors. There is nothing better for credibility with investors than third party sources singing your praises and mentioning your name.
By doing so, you will be able to hold out until you reach a mutually beneficial deal that rightly values your company and provides reasonable returns for your investors.
To be a startup founder, you need confidence, tenacity and flexibility. When you have paid your dues and compromise just enough, you will get what you deserve.