I don’t know what it is, maybe it’s the energy of spring but this month has been full with positivity and great progress. That’s why we have a bunch of great news for you this month! But before we jump in, we are excited to announce that partnered with the Saudi Arabian General Investment Authority (SAGIA) in another step towards taking our portfolio companies regional!
That being said, we also have potential pre-seeds in mind. We know that the cost of starting a business is expensive, bureaucratic, and difficult to raise funds or find the right talent or mentors for it. That’s why this month’s piece will be talking about common mistakes pre-seeds do and our advice to avoid them.
Let’s dig in!
The Bread Starter
They met with you, they heard your pitch, they are on the verge of funding your company, only they backout at the last minute. Bummer right? If you’re wondering what might’ve changed potential investors’ minds (or our minds), it could be one of these reasons,
Your cap table is all over the place
As an Investor, we want to understand who is already on your cap table. My team and I might steer away from investing in a startup if we find that there’s,
a). An inactive co-founder on board. It looks bad to us knowing there’s someone already onboard who’s not fully invested in their capital, so why should we?
b). Family members. Raising capital from family around you is great but problematic, especially living in a collective society where the line of differentiating between family and business is thin.
c). Founder shares. Even though common shares are usually associated with founders of the startup, sometimes they try to sell common stocks to potential investors as well. And while some investors accept taking common stocks, we generally insist on preferred shares simply to protect our investment.
Our advice? Diversify your cap table with people who can help you grow and buy out your inactive cofounder(s), don’t take family members onboard unless you’re 100% sure business won’t turn into a family matter and make sure that any cash invested into your company is converted to preferred shares. And who can adapt best? The businesses that are flexible. We have entered a work-at-home economy, which favors companies that can come up with solutions no matter if the life moved out from offices to our dining tables and living rooms.
Let’s talk mentors & advisors
For pre-seed startups, advisors can be particularly useful for tasks such as building out a company’s network of fundraising options, yet we’ve noticed that pre-seeds tend to,
a). Compensate advisors with common shares with a range of 3% to 15% per advisor vested over 3 years. Yikes! This high cost can be avoided by paying advisors with an equity stake that ranges from 0.15% to 1% of the outstanding common stock of the company (on a fully-diluted basis).
b). Have too many advisors onboard without having a clear role for each advisor. So you got rid of inactive founders, why are you keeping the burden of having to pay someone who isn’t adding anything beneficial to your business? Each advisor should fill a specific gap in your experience. Set clear commitments and expectations.
c). Get advisors who do not invest in them. Advisors shouldn’t just give consultation but must also have skin in the game. They should invest some money, something to reflect their belief in the business, no matter how small.
Our advice? Pay attention to how much you’re putting into your advisors and don’t go overboard, only hire advisors that can give clear consultations and fill your current gaps, and look for advisors who don’t only look at you as a client but actually believe enough in your business through investing in it.
Well, overall poor fundraising decisions
Some minor slips that founders don’t put in mind can cost them a lot and eventually not getting the funding they need, some examples include,
a). Not building traction after pre-seed. Founders of startups assume that maintaining the same market size that got them their pre-seed funding is enough to raise another round. Wrong. As a VC, we don’t just want to see consistent traction but an increase in attracting a bigger consumer pool before we invest hundreds of thousands of cash into a startup. Look into marketing your product or service or do a revalidation before meeting with VCs for your seed round.
b). Taking too long to raise by talking to juniors/associates. Go with investors who show that they understand what you’re doing. Try to talk to a partner first. Don’t talk to every VC on the planet.
c). Lack of research. Before approaching the VC you want, make sure you know everything about it. When we invest in a company, we look into every nook and cranny before we invest and put our money into it and we expect you to do the same. We do this because once we invest, we are staying with you for a long period of time and will have an affect on every future round.
Our advice? In order to continue raising funds for your startup make sure to continue building your traction, don’t take the shortcut, instead, try talking directly with the partners of the VC, and choose your VC wisely through extensive research.
Bling bling! ✨✨
Amazing news from direct-to-consumer jewelry startup Mejuri, raising $23 million in Series B. Congratulations!!
Do you see us now? 🔍
The World Economic Forum and the Bahrain Economic Development Board (EDB) have partnered and selected some of our portfolio companies shaping the Fourth Industrial Revolution. Can you identify them?
Touched by royalty 👑
In a pleasant surprise, Queen Rania paid a visit to POSRocket to give her support.
Till next time, stay hydrated and Ramadan Kareem!