Hey Akhilesh,
Great question. There are so many different difficulties involved in raising venture capital. A few I’ve encountered:
- just convincing someone enough to give you the money
, - being mentally ok with having a shareholder with expectations to report to until their exit (read: for years),
- recognizing the dilution to all shareholders over time and further rounds, and understanding what it means in terms of required performance to offset it,
- building an organization that can spend (venture) money in a planned and cost-effective way, so that you can avoid becoming dependent on it, and being forced to raise it on someone else’s terms.
We raised a FFF (fools, friends, family) round first, along with a government grant (2010). Then came an angel round along with an incubator and some institutional money (2011). Third, the first seed round with angels and micro VCs (2012). Then fourth, another seed round with more angels, and proper but still smaller VC (2013). After that came our Series A with a solid VC lead (2015). Once you’ve raised some money, it’s very likely that you’ll raise some more unless you go completely bust or broke.
Two hiccups along the way - not being able to raise any money at the end of 2011 when we ran out, and almost running out at the end of 2014 because of my strict standard for an expected Series A partner. We found our ways to deal with these, first with bootstrapping period of about 6 months and getting cashflow positive, and the second with a bridge round to help us stay afloat before the Series A. So, expect the shit to hit the fan at times.
Now, to answer your question. If I look at the first round as
- FFF: I would not do anything differently, I think. We badly needed money to get going, and we got it. Luckily, neither of the sources were expecting a return (grant), or a short term return (our founding investor, long-time business partner from the previous business).
- First angel round: I think a decision to couple it with an incubator in the US was really beneficial for us. Would not do it differently.
- First seed round: Maybe, for the future perspective, having less investors in the round? Then again, that was the best we could put together at the time - and we didn’t yet want to be exposed to bigger institutional money with higher expectations.
- Second seed round: Having one lead investor would have been better for the future, we ended up with two, and that caused some stir.
Here are my overall thoughts:
- Raising money takes time, customers and conviction of the future. Time needs to be allocated and dedicated, no way around it, customers acquired and conviction built up and a presentation of it all put together, polished and practiced.
- Raising money is more about finding than convincing someone. Sometimes, you can talk to an angel or micro VC and there’s nothing you can really do to make them invest (they’re at the end of the fund and consider it too risky, not doing any investments that year, etc). Other times, you have more impact because the other side is also more hungry, willing, and so on. In addition, some people won’t like you or won’t understand your business - money never moves in these cases. Prepare to approach tens and hundreds of angels/VCs and please don’t take it personally that 99% of them will not invest in you.
- Money will run out when you’re building something from scratch. It’s not a matter of “if” but “when”. I would make a goal number one to be well ahead of that point in my planning, and raise money when you don’t really need it, yet. I only managed to get to that state of mind after our Series A. Before, we knew it would run out, but I started planning for a round too late. Sometimes it turned out ok, other times it was really risky as mentioned above. Point is, not needing the money yet gives you the best position around the negotiation table, and that’s what I would always prefer over the opposite situation.
We raised other rounds later on but hopefully the first 5 years here gives a good example of difficulties and my thought processes. Does that help? Damn, that was a long answer .