– As a founder, the most important question is how much do I raise and when?
– I have seen in my experience that most founders have a hard time figuring out the funding needs of their startup. Most of them know why they need money, and the end-use, but how much and when is very important because, with every equity raise, you will most likely tend to dilute your equity in the startup, unless you use iSAFE notes to raise initial rounds. More on iSAFE notes later…
Please remember, equity is the most valuable thing, a founder has in his / her start-up. Too much dilution at early stages tends to result in loss of control for the founders, when the company grows, and when it matters the most to the founder.
If you don’t have a co-founder in your team with accounting and finance expertise (MBA finance), please use the expert services of a Chartered Accountant or a Finance professional, experienced in the space, to prepare your financial model. It’s a very important area of expertise you don’t want to be left unattended. A financial model normally consists of revenue, direct and indirect costs and CAPEX (capital expenditure) assumptions, profit and loss accounts,s and a cash flow statement for the next foreseeable future. For early-stage start-ups, a two to three-year forecast is good enough, to begin with.
In the early stages, it’s always good to have a monthly cash flow statement in front of you to arrive at your funding needs. It gives you the requirement at every stage of your start-up’s lifecycle. Most startups are bootstrapped in the early stages and cash is truly the king here. Every founder must know his/her runway (time available before funds available on hand run out) and an accurate cash flow projection does just that.
Later, and most importantly, these projections can be referred to when you have traveled a distance to evaluate whether you are on course, or one needs a course correction, whether you are overspending as compared to what was envisaged earlier.