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August 13, 2021 in Latin America, Abaca, scale, startup, VC

We Were Told to Fundraise. What’s Next?

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Various Latin American startups have recently become unicorns (private enterprises valued over 1,000 million USD), while others have raised considerably large rounds of capital. But how do startups get to the point where they are able to raise capital? And more importantly, should all of them do so? 

THE DECISION

Not every business needs to raise capital in order to scale; our friends at Zebras Unite have talked about this for years. The best-suited path for many startups is to grow at a more measured pace and prevent their stake in the business from being diluted, while for others the best path is to reach a wider market more quickly through capital injection.

If your startup’s growth plan and traction is enough to justify the need for more capital and you decide that raising capital is the next milestone for your business, make it your priority.

WHEN AND HOW MUCH? 

If you’ve decided it's time to raise money, there are a few things you should do:

  1. Decide the amount you want to raise
  2. Get your materials ready
  3. Find your key players

Abaca IREX blog 3 ENLet’s dig into them! 

If you know the amount you want to raise you will be able to target the right investors. There are different ways to calculate this amount. Here’s the easiest one: know your costs, expenses, and how much these two can grow in the future. Add them and calculate the amount you would need to operate for a certain period.

Have your materials ready before looking for potential investors. These materials might vary depending on the Venture Capital you approach but most of them will ask for a short description of your business, an executive summary, and a deck. Others might want to learn about your business plan, private placement memorandum (a document that details the investment opportunities for your company, disclaims any legal liabilities and explains the risk of losses), detailed financial model, and product demo. 

Find your key players and prepare your team to negotiate with investors. An experienced lawyer who understands VC’s financing will help you navigate the negotiation process in the best possible way to keep a good relationship with the investors and achieve the best outcome for both parties. An accountant will keep track of your finances, and be aware of any tax concerns that could result from financing rounds. A mentor with fundraising experience will advise you through the financing rounds and most importantly, provide introductions and market knowledge.

THE RIGHT INVESTOR 

Once your team and materials are ready for the next phase, find the ideal investor. Keep in mind that this relationship works both ways, do your research and decide which VC is the best fit for your startup. Here are a couple of steps you can follow to make that decision: 

  1. Define the type of investment funds you are aiming for: Angel Investor, Micro VC funds, Seed-stage funds, Early-stage funds, Mid-stage funds, or Large-stage funds. But most importantly, the amount. Rounds come in all shapes and sizes today depending on the region, so it could get confusing. 
  2. Talk to other entrepreneurs: They can share unfiltered data about their past experiences and can connect you with VCs.
  3. Look up for potential VCs and learn about the type of investments they’ve made. 
  4. Engage at a personal level: Develop relationships that evolve over time, do not think of fundraising as a single transactional experience. It’s not.

As you embark on your growth journey, keep in mind that the wind will blow in your direction and against it. But every step of the way is a key component of entrepreneurship and later on success.

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