The question when to initiate efforts towards raising funds from an investor is critical to ventures in the Hitech field. In this post, we tried to shortly review crucial considerations in this respect.
Many of the Hitech entrepreneurs, who reach our offices for legal advice for their early stage ventures, also seek our assistance in introducing them to potential investors. Usually, in our discussions in this respect with such entrepreneurs, the question when should funding be raised comes up.
Hitech ventures are typically based on technological development and the proper building of the technological infrastructure is most important. Further, orderly, sophisticated and prudent foundation of the venture, while consulting the relevant experts and preparing a professional business plan, are considered, in the Hitech field, prominent to the success of the venture. In addition, the technology field is a dynamic filed that develops very rapidly and thus a startup depends on quick advancement and flexibility. Each of the aforesaid elements requires large resources and allegedly supports early stage financing. Since the marketing and sales costs in this field are high, even when the startup’s development is in advanced stages, its thirst for financing does not decrease.
On the other hand, there are considerations supporting the deferral of fund raising. First, it is more difficult to raise funds for an early stage ventures, its horizon being less clear. Furthermore, raising funds at an early stage shall more excessively dilute the founders. In addition, entrance of an investor into the game may restrict the founders in a manner that is detrimental to the venture. Further, the fund raising procedure consumes resources of the startup in a manner that may harm the venture and deflect it from focusing on its efficient management.
Naturally, each case requires examination of its special circumstances, including the entrepreneurs’ character, their ability to finance the venture from their own funds (for instance, through bootstrapping, i.e. operating the venture with minimal funding from the entrepreneurs” savings), alternative funding sources (for example, under governmental plans) and the investments” market in the relevant field, as well as the review of the above consideration.
See the link below for the Hebrew version of this article, which was recently published with New1