out how much to raise in order to accomplish a desired set ofoutcomes. Next, a test-drive with investors helps inform whetherthe valuation they’ll be able to negotiate derives reasonabledilution or if they’ll need to adjust the amount, either up ordown. If they adjust the amount down, the significance of theprojected outcomes will also be adjusted down. That might causethe round of funding to seem less exciting for investors, and anadjustment may be necessary. These iterations continue untilthe startup finds the right balance of outcomes and valuation.Multiple rounds over timeNow that you understand the basic formula and framework,let’s project forward to see how multiple funding rounds tietogether. As you can see in the figure below, with each round offunding, the projected outcomes eventually become the state ofthe business in the future. That is what the company uses to gainthe desired step-up in valuation for the next round of funding.This cycle continues again and again until the company is eitherself-sustaining or experiences an exit (acquisition or IPO).Evolving from a bootstrapped startup to a funded one is a bigand important transition. A startup might end up as a fundedone out of need or want. If they don’t need funding, thenthey have alternatives. Most startups eventually need outsidefunding and, once that happens, many things change. One ofthose things is they get to accomplish more and grow faster,assuming they have a scalable business. But they will alsoexperience a change in accountability. No longer are they onlyaccountable to the founding team and other team members;they suddenly have to answer to their new investors, whomight have different interests, beliefs, and motivations thanthey do. The more investors they take on over time, the morevaried those interests, beliefs, and motivations will be, and themore they’ll have to accommodate or negotiate with them.Like many things in business, up-front time and effort spenton fundraising strategy can pay huge dividends later. Ittranslates to increased odds of raising the right amount ofmoney to reach the next significant milestone for makinganother want-versus-need decision and generally controllingtheir destiny. Surely, they know things won’t play out exactlyas planned, but that doesn’t relieve them from the obligationto start with a strategy. After that, they can do what everygreat entrepreneur does—adjust and adapt as necessary.Iterations to fundraising strategy may also happen as youtest-drive ideas and assumptions with investors beforeactually launching the fundraising campaign. That takes placeduring the planning phase of fundraising—and is the topicof my article in the next issue of Texas CEO Magazine.Gordon Daugherty is a seasoned business executive, entrepreneur, startup advisor, investor, and the best-selling author of Startup Success: Funding the Early Stages of YourVenture. A proud native Texan, Daugherty graduated from Baylor University. He has vast experience with early-stage fundraising from both sides of the table, making morethan 200 investments and raising more than $80 million in growth and venture capital as a company executive, fund manager, board director, and active advisor.SUBSCRIBE TO Texas CEO Magazine at texasceomagazine.com/subscribe.WANT TO SEND THIS MAGAZINE TO YOUR CLIENTS?For information on bulk discounts, email us at info@texasceomagazine.com.WANT TO STAY INFORMED ON OUR EVENTS, PODCAST, AND MORE?Sign up for our weekly e-newsletter at texasceomagazine.com/news.26 Texas CEO Magazine Q1 2020
Improve YourPROFIT MARGIN Via...• Process Automation• Platform Standardization• Digital Transformation• Data Analytics & GovernanceCase studies on the aforementioned can be found at:ylconsulting.com/tx
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