How To Raise Money Smartly

By Tali Tasipori Globes, Tel Aviv, Israel.

Paybox Ltd. CEO Tal Grinberg Question: What is the best moment to carry out a seed round, i.e. the first financing from an outside investor, not the founder?"

Answer: "The correct answer is, 'that depends'. There are many components that build the formula when is the best moment to raise seed financing, and even then, the formula is not scientific, but only guidelines which should be remembered. a) raise when you can; money is the resource with the greatest shortfall in a start-up, so if you can raise money, you should do it. b) this isn't a game of terms and valuation, as founders have a lot of shares in the company but little money, so it is a good idea to raise money even at less than ideal conditions. Wiser men than I have said that it's better to have 0.01% of a large company worth a lot money than 100% in a small company that closed because it had no money. c) the timing for raising money depends on the entrepreneurs' track record, the industry they are in, the performance measures that the company brings to the table, and the awareness momentum. Investors are human, and people are social animals who are exposed to psychological influences. If you can activate these psychological mechanisms and harness them for the company, the timing for raising money becomes better.

Question: Does a personal investment by the founders facilitate a seed round? Does it demonstrate that the investors are serious in their intent?

Answer: "The entrepreneurs should invest 100% of their time and energy in the company. That is often the way to measure their seriousness about the company that they are building. The founders don't always have money to invest, which is clear to the investors, so the two sides understand that cash equivalent investment is time, talent, energy, and the like."

Question: How do you pick a financier? Is a particular entity suited for different stages in a company's development?

Answer: "First, choose what is possible, and assuming that anything is possible, set priorities for the company in line with its strategy. Angels fill an investment role in the earliest stages of a company, and if it reaches later stages, it is quite common to see a venture capital fund lead the financing with more angels joining it. As for the Office of the Chief Scientist and its incubators, that is a question which in most cases, regardless of the investment program, are less related to timing, but the kind of company and technology that it is developing. The more complicated the technology, the more suitable is funding from Office of the Chief Scientist."

Question: In your opinion, is the specialization of the financier in the company's niche important?

Answer: "It's very important. However, the privilege of raising money from an investor with substantial added value is for companies that can be picky because they have provided outstanding measures and/or are serial entrepreneurs."

Question: How do you decide how much to raise?

Answer: "That's a chicken and egg question. Does money dictate the targets that it will achieve, or do the targets dictate the money that needs to be raised? There is a balance between desire and reality. It is important to understand the measures needed to for the next financing round in order to be realistic about the ability to reach it with the amount of money that can be raised now." ---------------------------------------------------- TapReason Ltd. CEO Nimrod Elias

Question: What is the best moment to carry out a seed round, i.e. the first financing from an outside investor, not the founder?

Answer: "Raise money when you can. It is better to avoid embarking on a financing round under pressure. The perfect timing to raise money is when there is momentum around the company, the product, or the entrepreneurs. That is true for every financing round, but true at the seed stage, when you are mainly selling yourself, the team, and the ability to execute. The main thing when generating momentum is the value that you are creating, the need for the solution you are offering, and the arguments supporting why you are going to change the world. I know many stories in which entrepreneurs who I know personally the moment they had the right momentum tied into a coherent story with a narrative of success, built a network of relationships in which they alleviated investors' fears at every meeting and raised more than they planned. In a seed round, you are measures by your ability to connect the dots, and answer the many concerns of the person or investment firm before you."

Question: Does a personal investment by the founders facilitate a seed round? Does it demonstrate that the investors are serious in their intent?

Answer: "Such an investment is evidence of their faith. The time invested by the entrepreneurs who work together full-time on the idea, are fully committed to success, and even show a level of execution ability is the important threshold of seriousness."

Question: How do you pick a financier? Is a particular entity suited for different stages in a company's development? Answer: "In most cases, you do not choose who the financing entity it, but maximize the offers you receive. I do not know entrepreneurs who will say no to an offer from a fund. An entrepreneur who looks at his investors, especially in the seed stage, as nothing more than a check, loses the ability to leverage the company. You need an investor with whom you have a good personal relationship. You mustn't be addicted to money or terms, and it is important to listen to the opinions of other entrepreneurs who received financing from this body. In general, it is important to understand how the different investment entities work. When approaching an angel, the chemistry and his connections in the market are just as important as the size of the check. With funds, the decision-making process, investment strategy and number of investments per year are important information."

Question: In your opinion, is the specialization of the financier in the company's niche important?

Answer: "Obviously. An investment from a body that thoroughly understand your company's market, with a relevant network of ties, familiarity with the expected challenges and potholes will be a power multiple and help you is later financing rounds."

Question: How do you decide how much to raise?

Answer: "The minimum amount should be enough to help you secure sufficient achievements to reach the next big round. The start-up's conduct requires the entrepreneur to also manage risks from the perspective of both the current and the next investor. The sensitive point is the safety margin that should be taken to minimize shareholders' dilution in the next round. A rule of thumb states that the money should be enough for 18 months of activity during which a safety margin should be taken to hire employees (three months in the case of a technology employee), and six months for the follow-on funding process. From that point, the plan should have enough ammunition for the next round within a time range of one year. My personal recommendation is not to play valuation games, but to focus on closing the round at a realistic amount as quickly as possible." ----------------------------------------------------

Finupp Ltd. CEO Assaf Regev

Question: What is the best moment to carry out a seed round, i.e. the first financing from an outside investor, not the founder?

Answer: "To carry out the first financing round, the company should be able to persuade a seed investor that, which in a predetermined timeframe, the company will reach a target, such as a large financing round or profitability."

Question: Does a personal investment by the founders facilitate a seed round? Does it demonstrate that the investors are serious in their intent?

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