If you keep a close watch on the startup ecosystem you may know how difficult fundraising conversations can become to confront. Out of anxiety startup founders usually ask for a private conversation with their team in an ongoing pitching. No matter how well you prepare your presentation for the Venture Capitalists(VCs) you end up with no replies in those hours-long exhaustive meetings.
Is it good to sell a huge equity stake to VCs or startup investors while fundraising? A big no! It is very dangerous to sell huge stakes to investors. For example, if a startup founder sells a large chunk of equity to investors, then the founder will end up with a mere 10-15% stake at the time of their Initial Public Offering (IPO).
These VCs have years of experience dealing with startups and always try to squeeze a large chunk of equity from the innocent founders. These investors want to have skin-in-the-game. They like having control in all business decisions. But startup founders end up with no say in their own startup which they are ambitiously trying to build from scratch.
If you don’t want to lose control of your startup, then try to remember the above mentioned points accurately. An important thing to keep in mind is to prepare well for your pitching. Next point to remember is to make an accurate upper limit of equity you would be ready to offer to those greedy investors. If an investor offers his funds exceeding this limit then you should look for some other investor. One person can sell 50% of equity for INR 20 crore in a business. While another person, an intelligent one, can have a potential to sell 15% of equity in the same business for the same amount i.e., INR 20 crore. Don’t become a scapegoat in those dealings.
An investor must learn the art of letting go of a tempting offer while fundraising. Startups can take advisory services of investment banks before raising funds. Facebook once offered to purchase Snapchat at a $3 billion valuation in cash. But Evan Spiegel, Snapchat founder & CEO rejected this offer because he knew the true worth of his company. Today Snapchat is worth $100 billion.
On this note we are ending this topic. If you’re an investor enthusiastic about investing in startups or you’re willing to raise funds for your startup contact our team ASAP.