Timing your startup
When is the best time to start your startup?
Entrepreneurs get so excited about forming a company that they often lose sight of the hard road ahead. It is easy to overlook the fundamentals of building a successful business. While there is no mathematical formula for determining the best time to start a new company, raising enough capital to cover the first year of operations is a good rule of thumb.
The “best” time has less to do with the stage of research than with the ability to raise capital.Innovative discoveries are generally quite far from being products and have increased chances of failure during development. The pathway from concept to product entails substantial risk. Therefore, the more embryonic the discovery, the higher the risk.
Investors prefer companies that are advanced in product development. For knowledge intensive products, such as drugs or high technology, mid-stage human clinical trials, or those with successful beta tests of their software.
Investors can be stratified according to their comfort levels with risks at each of the stages of the commercialization process. Those at the early (highest‐risk) end are often called “seed”investors, and those at the later (lower-risk) stages are called “mezzanine” investors. It isimportant for the Entrepreneur to clearly understand the risk profile associated with commercializing their product, since it enables them to better assess the investment climate.
The amount of money you plan to raise should be sufficient to accomplish key milestones that will either (1) make your start-up self-sufficient or (2) enable you to raise additional capital at a higher valuation. Higher valuations enable management to keep a greater percentage of the company, in anticipation of future financing rounds
Like it or not, the entrepreneur needs to prepare for an exhaustive due diligence process. Due diligence is the analysis and evaluation conducted by firms considering an investment in your company, and focuses primarily on (1) your management team, (2) the market opportunity, and (3) your technology, including intellectual property protection, usually in that order.
You should prepare a list of references and accomplishments of key management team members (including your scientific advisory board members) and on your technology. Furthermore, haveyour patent firm prepare a status report on your patents, including a “freedom to operate”opinion, so you can verify that your products are proprietary and that you are not encumbered by the patents of others.