When is the ideal time to raise capital?
One of the most important steps for the proper development and growth of a startup is when it seeks to obtain external financing in order to grow...
One of the most important steps for the proper development and growth of a startup is when it seeks to obtain external financing in order to grow and give formality to its venture by raising capital.
Raising capital consists of raising money from external investors who, in exchange, may acquire a part of the company in question or grant a debt through loans or credits.
However, the search for capital is not the first step to take for all start-up companies, as they must first consider a whole process before embarking on their search for financing.
According to the accelerator and venture capital firm Wortev, before reaching financing, startups must go through four previous stages: consolidation and growth, which is the ideal time to grow and scale the idea, as well as structuring, to give formality to the areas that require it.
There is also planning, which serves to adjust the business plan with what has already been seen in the market and, finally, capitalization, which will be done depending on whether the company is selling a lot of its product or service.
Experts recommend that, before a startup seeks new investors, it is advisable that it is regularized in legal terms and that the aspects of such operation are clearly established, as well as the potential return.
Denis Yris, founder and director of Wortev, talks about the importance of first validating the idea during the early stages of the company to demonstrate that it can be sold in the market, so that the entrepreneur can experiment and find possible flaws in his business idea.
Once the idea is validated, the entrepreneur can begin to raise private capital with the results obtained in the market; that is, this prior financing is not necessary to obtain validation.
The problem arises when small entrepreneurs in Latin America encounter limited opportunities compared to other parts of the world, as there are not many investors willing to bet at an early stage on ideas that are not yet fully launched, so preparing a very clear presentation is of utmost relevance for this process.
Fortunately, the outlook looks better than in other years for those seeking capital in Mexico, as data from the Mexican Association of Private Equity show that, at the end of 2020, there was a 15.8% increase in venture capital funds compared to the previous year.
Factortech helps UK technology SMEs gain rapid access to simple capital solutions through early stage R&D funding. Our aim is to be the funding partner and work alongside them to achieve their commercial goals.