The timeless quote of Heraclitus, “No man crosses the same river twice, for its not the same river, and he’s not the same man”, perfectly describes the stark difference between the approaches used by a first-time entrepreneur compared to a seasonal one while raising funds. Now the question arises on how to raise capital?
The impact of the experience is seldom considered in the sphere of entrepreneurship. Most people consider that startups and new ventures readily grab money from a wherever source that they can – and nothing could be further away from the truth.
Approaching Investors and Evaluation
There is an order in which entrepreneurs choose to approach investors. From Angel Investors to Venture Capitalists, skipping too many steps can lead to problems. The reasons are pretty simple.
Sometimes the company is not at fault but the investor themselves over-evaluate the product or the potential of the company and offer more than required at a higher stake in the company. And the next thing we know is that the company receives funding at an over-valued evaluation leading to downfall.
Although a huge investment coming right your way might sound like a great thing it creates an array of difficulties if not assessed properly. Imagine that what If the company had only planned on how to optimally invest one-tenth of the funds that have been raised, how will it provide a good ROI for the other 90%?
To project growth, it needs a higher evaluation in the next series of funding. A high initial start can set the bar too high to reach. And the biggest problem of all – abundance minimizes innovation. An expensive couch to fall back upon can seriously hamper the work environment that a company needs to survive in the long run.
How a Start-up Accelerators Can Help
Big Venture Capitalists are out of reach for most first-timers. Some kickstart their entrepreneurial journey with their savings. Of course, those who are just starting out of college don’t usually have much saved, so their only option away from the Hierarchy is to bootstrap funds.
Startups’ accelerators are their first go-to place. These provide access to investors, mentors, and all the kinds of supports that a young startup needs. Then they seek investments from serial entrepreneurs or individuals with access to wealth.
Apart from funding, the first time startup founders need advice. There are many hidden challenges behind scaling something which seems easy on a small level. A word of caution against these is needed, and can only be given by someone experienced who has a keen eye for them.
How Seasonal Entrepreneurs play the game
Having been through the entire process once, their biggest challenge is to find new investors and keep the valuations minimal. They mostly skip the accelerator part and head straight up to Angel investors.
Then, the eye Seed funds against the stake in their company. It is much later in the startup trajectory that they contact Venture Capitalists, sometimes in the fourth or fifth fundraising round. As the money of VCs gets involved, they are more likely to extend their hands to help it scale.
In various instances, the entrepreneur had been an investor themself. This gives them the perspective of what goes on at the other end of the table. Even though the field is the same for everyone, entrepreneurs with more experience certainly have the resources to play the game better.