A common saying in the business world is “cash is king.”
This expression implies that the most valuable asset a company has is its cash balance. If you live by this motto, you will feel pressure to rush your technology out to potential investors to get your hands on this ever-important cash.
Taking on a partner at the first promise of cash may be foolish as this partner may not be the right fit for your startup. It’s your technology and management team that will attract the quality cash and the quality partner.
Investors are in a very strong position in the early stages of startup companies. Financing structures are complicated and investors are savvy. There are steps that you can take to increase the strength of your startup from the get-go which will put you in a better negotiating position.
You must make your enterprise so attractive (stellar management team, solid business plan) that the investor is eager to pay top dollar for a piece of the pie.
The very notion of obtaining cash through investment means that your ownership is reduced and you have inherited a new team member, or better yet, a new family member. Your relationship with an investor is a marriage. You’re in it for the long haul, and research is necessary.
What do you need to prepare for an encounter with a potential investor? Here are some ideas:
- A feasibility study which explains the market size and its needs
- A business plan, including cash flow projections and budgets
When making your presentation to a potential investor, bring along your entire management team so that they can see the quality individuals they will be partnering with. Enthusiastically pitch your idea and make them want to partner with you.
Many startups begin the fundraising process with friends and family. Be sure to be clear about the benefits (ownership, voting rights, etc.) that they will receive in exchange for their investment. There are also some great early-stage investors in our Great Lakes region that will provide seed or scale-up investment in exchange for ownership or sometimes debt instruments.
After the technology is proven, you might be ready to take on a larger investment from a strategic or outside investor. These deals get more and more complicated over time as you are not only negotiating with the potential investor, but you have your earlier investors to think about too as any new investment is sure to impact their value.
Lean on the expertise of your investor group as well as those formal and informal advisors that have helped you take your technology this far, and when you have found the right partner to accelerate your technology to the next level, tie the knot!