Three Questions to Answer Before Raising Your Startup’s First Check
On a weekly basis I typically meet anywhere from 5 to 15 founders. Given what I do, I usually meet founders after they have decided that raising venture capital is the right path for their business. However, I often wonder what triggers a startup to start venturing down this path in the first place.
Every founder and company is different and the type of support they need can vary widely so ultimately the decision to go after venture is both personal and specific to each company. However, here are a few considerations a new founder may want to ponder before raising that first check.
What kind of company do you want to build? Venture funds are looking for startups that have hyper growth potential, can easily scale, and have huge addressable (or nascent) demand. VCs look for founders that are 100% committed to their company and see themselves building it for the next 8-10 years. Ultimately, a founder should know that giving away part of their company (and often control of key decisions) can make the part they own incredibly more valuable.
Is there existing customer demand or an untapped market? While this is not unique to a VC-backed company, it will likely be the barometer of whether or not you can actually start raising venture capital. As an investor, I want to make sure that the founder is solving a problem or creating a new category and not just building a nice-to-have tool that hasn’t been market tested yet. While not all, many VCs want to see some revenue and customers to verify product-market fit.
In the software industry, a founder can often create a very basic MVP using low or no-code tools, a landing page, and a small amount of Google Ad spend to beta test the idea. Further, surveys and user conversations can provide valuable feedback in the early days before spending a significant amount of personal capital or sweat equity on an idea. These tools have made it easier for early stage tech businesses to get started by democratizing know-how.
What do I need to grow? Venture capital provides the ability for companies to scale quickly and hire fast. If a startup’s business model requires network effects or a large team of engineers to build, venture is often required to be successful so startups can widen their reach of potential customers and build out their IP and tech stack. If your unit economics require rapid growth in users and clients to be attractive, this is likely a sign that venture could be a good fit. Of course, each founder must look for a fund that provides that resources and expertise to grow their specific business. At Silicon Road, we have years of experience in technologies transforming eCommerce, retail, and with CPG so we look for startups that are providing solutions in these categories and connecting them with corporate partners where it makes sense.
This is just a subset of considerations when navigating capital. What are others that founders should consider? Drop a comment below and if you know venture is the right path for you, reach out - email@example.com.