Every single founder I’ve met in Brazil struggle with fundraising. Indeed, it is not so easy to do it in Brazil as it is in Silicon Valley. On the other hand, it is not so hard either. To make this process easier, you must know how to manage a fundraising process. More than that, you should know how investors think. The first think Venture Capitalists will ask is: why are you fundraising.
Forget valuation, you first need to know what are you doing before thinking about how much your startup is worth. I’ve seen many startups with reasonable valuation struggling with VCs, because either they are asking for too much or not enough investment. If you don’t know how much do you need, step back and begin the process again. You might argue that you should ask for more than you think you need because you might be wrong. If you are wrong on forecasting your needs, do you think VC should invest in you? So work on it. Of course, it is impossible to predict the exact amount you will spend, but you must forecast well. So how to forecast better?
You must have some thoughts in mind during this process. First, don’t fundraise thinking that you will never do it again, fundraise for a reason. In general, the reasons for getting investments are:
• Developing a product or solution;
• Developing new markets;
Second, define what you want to build with the money: a new product, or a new office in a new city, or to hire someone to handle marketing. Each stage of your project will demand a certain amount of money. You must research for prices at this point. Then you set a timeframe to each stage of development. Investors like to see a schedule for spending the money. The amount you are spending per month is called the burning rate. Be reasonable; don’t expect to build a product, set a new office and go global with Angel Money. I know fundraising is painful, but you don’t have many options despite that.
At the end, you should try to be as specific as you can on how you will spend the money. Plus, you must have right answers for why will you spend that amount on each stage. Asking a reasonable amount is not enough. One additional advice here: don’t forecast founders will make a lot of money. You could have a great business, but investors might decline your offer if you show that you, founder, is expecting to have a good salary. Indeed, I saw many investors saying that they don’t invest in any startup which founders make more than $100K per year, in Silicon Valley.