Ideally, any beginning entrepreneur might wish to consider a proven, four-step process before going on 'bended knee' in search of capital, notes Peter S. Cohen in his article on the Entrepreneur website, “Why Raising Capital Is a 4-Step Process.”
The four stages include these considerations:
Probably the weakest position to be in for startups is when the prototype is still on the board or in development: Best to rely on the founder’s own credit, including credit cards (ouch!) or sweat labor.
What’s important during this crucial stage is the founder’s ability to listen as research facts are compiled from the marketplace and all the feedback is well scrutinized and acted upon.
Unless there’s a history of previous profitability in other ventures, count on getting little interest from VC funders. But if the money must be had, then concentrate on developing a very “clear business model.”
At this point, startup founders can reach out to their network of family and friends...and maybe that angel investor happy with a small stake in the company. Don’t be impatient at this stage, even though the prototype might’ve been received well and all systems look green-to-go---avoid accepting outside funding deals aimed at moving you out of the company.
This is where an entrepreneur can make their move to rope in VC funding; this, because you’ve established market share, but are ready to move into new areas, countries and “customer segments.”
Now, as the startup CEO, you are in good stead to negotiate from a position of strength while not giving up your ideals or product strategy. In short, you are can take your time to vet your would-be funding sources, knowing they may very well be on your board and will, no doubt, have some say about certain aspects of your business.
Startup CEOs may want to raise as much capital as they can---fast! ---but “balance” must always be maintained to ensure that control is kept up until that time the company is sold, or an IPO is issued.
Of course, when the wolf-is-at-the-door, or chaos abounds, sometimes a simple, fast---and temporary solution---is best: credit cards.