This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process. Opinions expressed by Contractor the contributors are theirs.
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In the United States, 9 in 10 startups fail to survive, while in Mexico 75% of new businesses fail before the age of two, according to the Center for the Development of Business Competitiveness. On top of that, the second reason startups fail is lack of capital (29%) and lack of interest from investment funds ranks number 16 (8%) according to CB Insights. “12 Reasons Why Startups Fail” . Obtaining an investment is a challenge and every CEO of a company of this type should focus on creating a product that is attractive to the market, hiring a good team, maximizing sales, satisfying their customers. that he has already acquired and raising capital.
In theory, it should be understood as it is; However, in practice it is much more than that, the CEO need to make sure they know when their cash is depleted, understand what milestones need to be reached before the highest valuation moment, create the right plan to reach those milestones in the right term, but there are ways to optimize your capital mobilization strategy and at G2 Consultores, a firm specializing in startups with a seed capital funds for companies like yours, we give you the following recommendations:
1. Understand how startups are valued
First of all, you should know that valuations do not stay static or increase linearly over time. In practice, it does not work that way. Valuations are based on risk calculations and returns on investment, obviously your business value is involved. Valuations rise as the level of risk decreases or as the size of the reward for investors increases i.e. the value of stocks or what they would get at that time as ROI (return on investment), for example.
The risk is not reduced linearly over time, but changes based on the milestones you reach e.g. customer traction, hiring a strong team that guarantees delivery of a product or customer service, that the monetization strategy works and is proven; It must be shown that a suitability for the product market has been achieved, whether the technology works or the team’s ability to execute, and considering when you have established yourself as a market leader.
2. Identify your risks
In the early stages, the risks to which you are subjected can be very variable, the important thing is to identify them. For example, if you are in the early stages, the biggest risk you take is to verify that the technology or principle works. In other examples, there may be risk in the execution when hiring a team, or when demonstrating the monetization of a product (it has surely been shown that the product is accepted for free by the market but it remains to be verified that he is ready to pay for it). Another type of risk can be that the market is too busy and there is no way to enter it or that you do not know when you will take off in the market.
At the beginning, the risks to which you are subjected can be very variable, the important thing is to identify them / Image: Depositphotos.com
3. Look for quick ways to mitigate risk
For example, if you want to participate in a Seed Cycle, any customer pull test can significantly reduce the risk of a product or service launch and increase valuation. The goal would be to have enough customers to validate that this meets a real need and are willing to pay for it. Do the activities that allow you to perform this demonstration before you start your fundraiser.
4. Collect enough money to reach certain milestones
Identify the next steps you would like to take to significantly reduce your business risk. Once you’ve identified that step, think about how long it will take you to get there (with some conservatism) and what will get you into the next investment cycle. Remember that business success is far more important than dilution. A mistake that is often made is that to avoid it, less money is collected. Pick up what needs to be lifted for this round.
5. Validate milestones with your investors
Consider with your current investors (if you already have any) that the milestones you have chosen to achieve in the next round are sufficient and adequate to ensure the increase in the valuation of the company.
6. Focus your energies on reaching these milestones
As the CEO of the company, one of your key roles is to bring attention and clarity to your entire business, letting them know that the execution of these milestones needs to become the focus. ‘primary objective. Do not turn away from it.
Often times, the first few rounds are not completed as quickly as you might think due to failures in their execution, so it is important that you plan correctly.