When is it too early to seek venture capital? How do you find the right investor for your company?
Bootstrapped tech entrepreneurs who want to raise capital often ask these questions of peers who have gone through the process before. Indiana tech companies continually seek out funding (just check out our 2017 Q3 VC recap for examples) and we’re giving them a platform to share their experiences and advice with the greater tech community.
Prahasith Veluvolu, CEO at Mimir, an educational tech company that creates products focused on improving education, led the company to raise $2.7 million to date in venture capital from a variety of investors such as M25 Group, Chicago Ventures and Meridian Street Capital. Earlier this year, Mimir announced plans to add 100 new high-wage jobs by 2021.
Below are Veluvolu’s four missteps in fundraising that might prevent a future entrepreneur from moving too far off course.
High company valuations set high expectations. If you fail to meet those lofty expectations you may not be able to do a future raise at a higher valuation (or at all) when seeking capital again. Raising at a lower valuation than what is current, will result in your previous round investors taking a loss on their investment. This may cause them to be unwilling to follow your company on future rounds.
Media and social media like to glamorize company founders who have a net worth ‘x’ million. It’s important to remember that estimated worth doesn’t live beyond paper until a much later stage. If founders can’t make it to that later stage, that embellished net worth won’t exceed the value of the paper on which it’s printed.
Raising too early
When my co-founders (Jacobi and Colton) and I started Mimir, it took us three months until we started talking about fundraising. Our inexperience at that point caused us to view fundraising as metric of success.
Thanks to a few great advisors at that time (Mike Asem, Paroon, Juliana, and Anurag) we learned that we were grossly wrong and ended up not taking any capital at that point. If we had, we would have sacrificed a board seat and a double-digit equity stake of $50,000.
We held out and bootstrapped the company for another 12 months before raising our first round from Y Combinator with much better terms.
Fundraising IS NOT correlated TO SUCCESS.
Not being selective
Fundraising is a two-way street. Your company has to be a good fit for the investor in order for them to make you an offer. However, you should also make sure the investor is a good fit for your company before accepting any money.
Accepting an investment from a fund or an angel comes with much more than just cash. If all goes according to plan, you also get a new partner in your company. Keep in mind…if you can’t get along with your new partner they won’t be able to effectively help you.
As an entrepreneur, you should get used to hearing “no.” While raising early rounds, investors can be hesitant to be the first to commit capital to your round. Because of this, finding your first (lead) investor is always the hardest. Just because a few venture capitalists turn you down doesn’t mean you should stop. Remain agile with feedback from investors, iterate on your pitch, and keep going.
About the Author
Prahasith Veluvolu is the co-founder, CEO and application architect of Mimir, a rising education technology company that creates products focused on improving education.