INVESTORS: Not all tech investments are the same risk, same timeline for returns and same potential return profile. Early stage is the riskiest of all tech investment stages. Then growth and then late stage. Know the stage you are in and what risk/return you are seeking.
FOUNDERS: A startup is a general term, but when reaching out to investors it’s important to know who invests in what company stage. The first round you raise is from yourself. You need to have time and money to go from idea to an actual business. You then need to seek out FFF (Family, friends, fools) for the next sprint. Then as you go from startup to early stage seek out Angel investors in your community or extended network. Only when you are going from early stage to growth stage should you expect venture capital firms to express interest (unless you have a track record of doing this, or a few other exceptions).
THE NUMBERS: Here are the stats to help you understand the risk associated with startups and why raising capital is so hard. 90% of seed stage don’t make it to Series A. 50% don’t make it from Series A ti next round. Only 3% make it to the 5th of capital raise with the rest Dying, getting acquired or self-sustaining.
So founders you have a 5-10% chance of making it from seed to an exit. It used to take 3-5 years and average exits were 50-200m. Now it’s taking 10-13years and exits are 10x-20x larger. Early stage only makes sense for investors who plan on investing in at least 10-20 companies, if you invest in 3-5 you will likely loose all your money.
Founders, the more you can raise from yourself, FFF and angels the more traction you will have and the more interest you will get from VCs. Raising capital IS NOT worth celebrating. It’s a responsibility not an indication of how great you are or your business is. It’s more of an indication of your network.
Making money and getting traction IS WORTH celebrating, focus on that. The best early stage investors still get it wrong 70-80% if the time. Ask any questions about stages, seeking investors or anything above below!! 💰✊🏾