From pitching for seed funds to growth after launching your product, there are multiple facets of what it takes to be successful at all stages of startup growth. Below are some key pointers that every startup needs to know:
1. Team
“Date” your co-founders ahead of time. You will spend more time with your co-founders than with your friends and family, and VC investors care about the team at least as much as they care about the idea.
Hire s-l-o-w and fire fast. Don’t let one bad apple spoil the bunch.
2. Protect and Leverage your Intellectual Property
Be thoughtful about utilizing your employer’s resources. If you’re working for a company when you begin to formulate your startup plan, be sure to understand your obligations to your employer. You don’t want to launch a business only to have your former employer claim that your company’s work belongs to it.
Develop an IP strategy. Assign all intellectual property to your company and develop an IP roadmap for leveraging the value of that work.
Your ideas need champions. Be cautious about sharing the specific details of your work, but remember that if no one knows what you’re up to, no one can help you succeed.
Your IP is your “secret sauce” – it’s what makes your company different from your competitors. Leveraging your IP to be a barrier to entry in the market is what makes every other name-brand unicorn startup what they are.
3. Product-Market-Fit
Know your product and validate the concept. Don’t go to market until you have clarity on the problem you’re solving, your target audience, the size of your market and your product’s defining features. Once widely known, a company’s narrative is hard to change.
4. Use Investors For Business Development
Be strategic about your relationships. Investors are more than just a checkbook. They can provide critical business intelligence, help you make connections to industry leaders, and provide strategic advice.
Understand your company’s growth cycle. Very few companies find success quickly — develop a fundraising strategy that will help you preserve your equity position for the long haul.
5. Think Exit
The path that builds early revenues may not lead to a successful exit. An early understanding of the M&A opportunities in your industry is an important first step for a founding team that hopes for a successful sale at the desired return. Great companies are bought, not sold.
6. Execute
Just in case you missed this, execute, execute, execute. You’ve got to be in the market to win the market. Execute.
How to Prepare for an Equity Financing
We have covered in past FTTWs how to value your startup and how much capital to raise. Once your startup decides to pursue equity financing, you should start to prepare for the investor due diligence process. On the business side, you will need to prepare a business plan and should take steps such as obtaining management references, interviews and background reviews, customer/user references, technical/product reviews, financial statements and business model reviews.
Surviving the Series A Crunch: Financing Alternatives
The “Series A Crunch,” which is the significant decline in the number of startup companies per quarter that are completing their first equity financing, appears to be deepening.
Use a Term Sheet Before You Incorporate
Lawyers will tell you it’s important to incorporate your company as soon as you possibly can to avoid personal liability and to settle all outstanding matters among the founders. That’s good advice, but the place to start is with a Term Sheet for the incorporation.