Finding an investor who is the right match for your company is easier said than done. Many start-up companies and others in need of external funding struggle to find the right investors. These mysterious people and companies that have previously been difficult to find, and even more difficult to get in touch with, are now appearing more and more often in the news. They are more accessible than ever and with this comes a new challenge; Namely finding the right one.
Angels, seed, series A and VC. There are many words used to describe the different investors and to make things even more difficult they are mostly in English. But what do they really mean and when are they relevant for your needs?
Before you know who to contact, you need to know what stage you are in. We roughly divide it into three categories: Pre-seed, Seed and VC/PE.
The pre-seed description suits companies that are at the idea stage and do not have a positive bottom line. Here the focus is on product development and completion of an MVP or prototype. At this stage, the valuation of the company is very difficult, which complicates raising investor money. Therefore, the solution is often so-called "soft funding", which in this country involves Innovation Norway, the Research Council and the like. The term "bootstrapping" is about setting aside money from salary elsewhere, i.e. permanent or part-time job and using these funds on the idea/company. The famous abbreviation FFF stands for friends, family and fools, i.e. those who are willing to invest their own funds in an unclear idea at the very beginning.
The seed stage starts when you are either close to being, or are profitable. At this point, you have the opportunity to attract more professional investors if the business model is good and you have started to get sales. The professional investor makes greater demands on the company and will want to see the values that have been created. At this stage, the value of the company becomes relevant. All work that has been done up to today, as well as future unrealized values, must be included. Many things are still unclear and all parties know that, but everything must be on the table. The company still carries major risks and no one knows for sure how it will go. Here it is important to focus on a win-win investment where the company gets what it needs to succeed and the investor is rewarded for taking a big risk at an early stage.
VC/PE or Venture Capital and Private Equity is when the big players come on the scene. Now the company is large and in a growth phase. These actors carry out thorough investigations of the company, which require a lot of time. Here it is not a matter of drumming up 5-6 different investors over several rounds, but rather of finding a good match and working closely with it. The process is very demanding and it takes so much focus that it is desirable to release several rounds of financing. Depending on how far the company has come, it will be natural to look at a future exit for the founder, if it is desired by both parties.
Remember: there are always exceptions that prove the rule and entrepreneurs are as diverse as any other group of people. Not everyone fits the same mold. Some skip stages and others don't. There are examples of ideas that go straight to the VC/PE market and ditto more mature companies that have to "go back" a notch before they can move forward again.
By finding out where you are in the race, you can narrow down the search for investors more easily and be more confident about what is required of the various parties.