How much money should I raise ?
The purpose of raising the money is most important. If you have built the prototype you should only raise money sufficient enough to build a shippable product. The valuation at this stage will be fairly higher than the prototype time. The possibility of investors throwing money at early startups is fairly low but if investors are eager to invest you should raise as much money as possible to avoid further money raising. The best advisable answer is to raise only that much money sufficient enough to reach the next level.
What is the valuation of my startup determined ?
In most of the cases startups focus on how much stock they are diluting. It is much better to have 0.01% of google then to 51% of Rs. 10 million Company. One Typical tech startup should generally dilute 20% to 25% of shares for Rs. 2 cr. to 5 cr. The best method to do valuation of startups is to use approximations based on companies that are comparable.
Does my startup need to be fully functioning and profitable in order to attract investment capital?
It depends on the investors if they have sufficient funds they will invest in any startups having capability of delivering presentations and in times of scarcity of funds they become more cautious and only entertain fully functional and profitable companies. Entrepreneurs should look for investors who are ready to take risks in early unproven startups
Which is more attractive to investors – Product concept with a proven billion-dollar market with some big market players existence or a new, potentially billion-dollar market with no competitors present ?
Most of the investors have a mob mentality, they go with the market flow. There are a handful of investors who invest in innovative concepts with no existing market. To identify these investors is the big task, startups should make the mind to pitch their concept to as many prospective investors as possible to ultimately find that one investor.
How do I overcome if angel investors want entrepreneurs to have skin in the game if I don’t have money to invest?
Entrepreneurs have always skin in the game in the form of months of sweat equity. The most important factor is how long you’ve been working on the product and what progress you’ve made. This is the one factor on which investors should argue. If any investor is declining you because you don’t have skin in the game then that is not the fact, probably he is backing out due to some other reason.
What is the best order of approaching the tiers of venture capitalists?
Startups are advised to pitch almost any firm they can get into. Pitch as many companies as possible without focusing on the kind of investors (tier 1/2/3) they are. After a lot of effort you will realise all money is green.
Is it necessary to have hired a law firm and accounting firm before fund-raising?
It is not necessary but it is better to have a professional law firm associated with you who could help you in corporate financing decisions, can suggest some prospective investors in their network and obviously help in all legal paperwork.
Is it better to ask for the cash to support the whole project up to a liquidity event?
To know if there will be a liquidity event, when it will occur, and how much money you’ll need to get there, startups can only predict about it and can not say anything definitely. However, what you want to get, and what investors want to give, is enough capital to get to the next big milestone
Is it better to have fewer, bigger investors, or numerous, smaller ones?
The one startup is really lucky to have that option but in reality it rarely happens. Both options have their own advantages and disadvantages. If we have fewer investors, chases of communication gap in relationships are fewer however the more the investors the more people you have to help you in multiple business aspects.
Should startups be concerned more about dilution, or the amount the investor wants to put in?
The least startups should worry about is dilution. The most important priority should be the amount of money investors would like to put into business.