Przedscan financing before seeds is a key moment for every startup, but it is never the end goal. It is a tool to approach rigorously planning to maximize its value.
IN Yellow rocks‘ P2S The program, we saw how improper funds could threaten the way forward for the startup.
I would like to shed light on elements affecting the decisions of business angels and Venture investors that might help in the investment in further investments after the introductory round.
Investments at an early stage: what are they for?
The period after the investment is pre -seeded is time for experiments.
The founders should scrupulously study the market, engaging with as many recipients as possible, testing hypotheses and messages, and building MVP or a minimal profitable product. The goal is to find what the market wants and develop a suitable business model for its distribution.
Pre -financing is often provided by the runway six to 18 monthsThat is why it is very vital to define the next goals of the startup, determine what is needed to achieve them, and plan the financial allocation rigorously.
Sales prioritization
At this stage, the founders should prioritize sales above all and show that their idea can generate revenues, even with MVP. Without proof of demand on the market and a good monetization model, investors won’t see the potential of the following financing, even in the latest technological innovations.
Business models can often be tested with low-cost methods, equivalent to interviews with clients and surveys. These approaches provide beneficial observations without significant financial investments.
Compact product development
While sales increase directly, the functional product is of key importance for maintaining the trust of shoppers and investors. However, excessive expenses for research and development at this stage can quickly exhaust resources.
Startup teams should focus on developing a basic MVP, which solves the basic problem. Adopting the programming strategy allows you to introduce a functional improvement of the product based on feedback from users and avoiding activities that do not contribute to sales.
Scenarios planning
When preparing scenarios of the best, worst and medium soil, startups can quickly adapt to changing circumstances, while protecting their runway. Each scenario should contain steps to be made to ensure flexibility in uncertain markets or unpredictable sales cycles.
Avoiding common financial traps
Initially, pre -seeding agents can derail even the most promising startups. Here are some typical mistakes:
Overpaying talent: Too early employment of costly specialists can burden budgets. If the recent rental does not match the corporate culture, the cost of severance pay increases the financial burden. Freelancers and outsourcing consultants can turn out to be a rational selection.
This also applies to the founders’ salaries. The first investments are not expected to turn out to be the possibility of self -sufficiency, which suggests that the founder’s salary needs to be the lowest.
Premature transfer: The transfer of employees to the central location might be destructive and expensive. Work remotely or in areas of cooperation is much more economical.
Branding and marketing: At this stage, the startups must focus on testing various sales channels and a gradual increase in marketing budgets.
Proper naming also deserves attention. It is at all times a compromise of an idea, a free domain and common sense. Keep short and catchy.
Cash traps for the founders for the first time
The founders for the first time often fall into financial traps that may turn out to be fatal to the startup.
- Broken table: If investors see that the founders weren’t thought out enough and they lost 25% of capital at the stage of “Friends, family and fools”, they are going to avoid financing such a company.
- Insufficient personal investments: Lack of investing personal funds in the construction of MVP could also be a red flag for investors. If the founder does not use available resources, equivalent to money after the previous exit or financing, he shows a lack of commitment and a potentially higher risk for investors.
- Underestimating the combustion indicator: Lack of control over the speed of combustion can lead to rapid exhaustion of funds. It is vital to plan expenses in advance and rigorously monitor current expenses.
Preparation for early financing of seeds
Even in the initially phase, the founders should start to put the base for the next round. This includes:
- Building connections with potential investors;
- Rafination of decks, including all key performance indicators; AND
- Documenting adhesion and milestone.
Having a clear scaling plan helps attract future investors and accelerates the means of raising funds.
Application
Financing before the seeded is the key that opens the gates to the playground for the founders, where they need to make the most of every opportunity to study, communicate with clients and enthusiastically test hypotheses, because the price of errors is low.
Prioritization of sales, avoiding financial traps and strategic planning might help startups to fully use their initial investment, while preparing a scene for long -term success.