Bangladesh startup eco-system is growing rapidly. The changes happening now are just the beginning of the tsunami coming in next few years. We will have technology companies that will be solving big/hairy problems not only of our society but also of our planet. One critical ingredient in developing the system is funding. Not late-stage funding. When a company is successful with strong traction, there will be many to invest locally and internationally. But early stage funding. At a stage where people are writing checks on ideas and teams without enough traction to show. Without this element, our eco-system is not going to flourish the way it is expected.
One critical ingredient in developing the system is funding. Not late-stage funding. When a company is successful with strong traction, there will be many to invest locally and internationally. But early stage funding. At a stage where people are writing checks on ideas and teams without enough traction to show. Without this element, our eco-system is not going to flourish the way it is expected.
The good news is there are already some Angels/Seed investors who are participating in the market and trying to help the startups. So what are the questions a founder need to ask investors when taking first time outside investment? I have put together few critical points from my own experience.
1. How much share is the investor asking?
A founder is building a company to solve a problem. To achieve this goal, the founder needs to be in control of the future of the company. She needs to be able to make decisions. She needs to decide when to launch a product, how to ensure market traction and if necessary to pivot the company. Secondly, as the company scales and goes through different stages of funding, the founder needs to be able to allocate more shares to late stage investors and early employees. If she gives up too much share too soon, she will not be able to raise future funds from late-stage investors.
A founder is building a company to solve a problem. To achieve this goal, the founder needs to be in control of the future of the company. She needs to be able to make decisions.
If an investor is asking for majority shares/controlling stake in the company at an early stage, it means two things:
These are clear red signals. Run as far away as possible.
2. What is the track record of the investor? Does he have domain knowledge?
Look for investors who are bringing more than money to the table. You need investors who can help you grow, guide you through the processes. Just getting money will not play out in the long run. You may need to do it in extreme circumstances, but always look for smart money.
Look for investors who are bringing more than money to the table. You need investors who can help you grow, guide you through the processes.
3. How strong is the investor’s network? Can he help in future funding?
When receiving money, keep in mind whether the investors have enough network to help you connect to future later stage investors. Also, what is the track record of the investor? In many cases, the future investment will depend on how good the existing angel/seed investors are.
4. Are the goals aligned?
What is the expectation of the investor? Does he want an exit at the first opportunity where, on the other hand, you want to build the next unicorn?
Who to take money from is probably one of the critical decisions a founder needs to make at early stages. Right investors can significantly improve the chances of success of the company. The reverse is also true. I have seen potential founders being severely handicapped because of selecting a wrong set of investors. Like any other eco-system, Bangladesh eco-system is also going through trials and errors. There will be mistakes along the way. Both the founders and investors need to learn from their mistakes and improve from that point.
Who to take money from is probably one of the critical decisions a founder needs to make at early stages. Right investors can significantly improve the chances of success of the company. The reverse is also true.
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