7 Essential Rules for Seeking Tech Startup Funds

 

We all know that there's no such thing as an "overnight success." It's true for people, for products and for companies. However, many entrepreneurs in the technology sector fail to appreciate the importance of properly positioning their companies in preparation for the rounds of fundraising that will ultimately fuel their ventures.
 

These seven rules are critical for getting a tech startup ready to seek investors, make the most of the money they receive, and respond quickly to their marketplace.

 

1. Start with your minimum viable product.

Often the creator of an idea finds it unbearable to tolerate anything but perfection. However, perfectionism can be the enemy of progress. Ultimately, perfection is the goal, but understand that reaching perfection is a process. Take it "one step at a time" when it comes to developing and testing your idea. Improve it as you go along, based on feedback you receive from your prospective buyers or clients.

 

2. File for a patent or copyright ASAP.

As soon as you have your minimum viable product, apply for the appropriate legal protections to guard your ideas. If you end up making changes, it's far better to file for an adjustment to your patent. Do the research and filing yourself so you can spend your money on development rather than lawyers.

 

3. Balance adding co-founders with hiring freelancers.

When you seek venture capital, you need to demonstrate that you have the expertise to actually do the project you are proposing. Sometimes that means it will be better to bring in the right co-founder(s) rather than dip into the freelance marketplace. Will the skill set that you lack always be required on a managerial level, or do you only need some expertise to get past a specific technological hurdle?

If the need is short-term or you cannot find the right person to bring in as a co-founder, use the freelance market, but be sure to have the non-disclosure and non-compete forms ready for signatures. And if you work with freelancers, try not to expose your entire idea to them, only what they need to know to do their work.

 

4. Do excellent vendor analysis.

A bad vendor who has been trusted to supply a critical component can sink a startup. Savvy companies don't entrust critical components to a single supplier. Try to have a backup and do a thorough job vetting potential vendors. Not only do they need to have the technical capability to make your components, they have to care about the success of your project and be trusted not to steal your ideas. Develop your relationships with vendors incrementally. Don't reveal your entire vision at your first meeting.

 

5. Stay under the radar but not invisible.

Anyone who has done patent searches knows how difficult it is to come up with a truly original idea. There are probably 10 others working right now on ideas similar to yours. While you want to keep your idea "under wraps," you also need to test it sufficiently and expose it to your potential customers to gauge and create demand. Develop a "need-to-know" list — probably your most valuable customers — and keep them posted on your development.

 

6. Fund milestones not your grand vision.

You will find that raising money in the early stages of a project is quite expensive in terms of equity in your company; you don't want to raise more than you need at any one stage of development. This means you must create realistic and well-reasoned milestones. As with much of the work you'll do guiding a tech startup, this is a balancing act. If you seek too little money, you won't be able to do the work that needs to be done. If you seek too much, you will give away more equity in your company than desired.

7. Get a good grasp on finance.

Tech guys aren't required to be experts in finance. However, tech guys who are at the helm of a startup need to have a good understanding of the basics. When you go into meetings with potential investors, they will assume that you know what you are doing. You can learn along the way, but be sure that you always fully understand what you need to know to take the next step. Essential to the financial side is keeping excellent records. Investors will need to see them. If you waste too much time pulling together the information they want to see, they will just move on to the next "finances-ready" venture.

Of course, no one can guarantee your ability to land the venture capital needed to fund your company. But if you lay the foundation described in these seven rules, your company should be groomed and ready to start knocking on all the right doors.

 

About Hamzeh Al Fuqha:

Hamzeh Al Fuqha is a serial entrepreneur, inventor and angel investor. He founded Next Presentations and co-founded SmartAd. Hamzeh is a frequent speaker at industry seminars and guest lecturer at the American University of Sharjah on entrepreneurship and innovation. He has received several awards and won numerous national public speaking and debating competitions. Hamzeh studied Finance & Marketing at the American University of Sharjah and studied Entrepreneurship & Management at Harvard Business School.

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