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Last week, I shared operational tips on How to Prepare Your B2B Software Startup for a Bumpy Ride. As the world settles into ‘a new normal’ of uncertainty and active planning, I have come across two well-written articles of venture market sentiment and funding predictions. In times of uncertainty, sentiment is often what drives private and public market behaviour and activity.

This week’s article is a continuation of The Science of Financing a Software Startup which offers a practical frameworks for software entrepreneurs who may look to raise (additional) venture funding, perhaps sooner than planned. Previously I addressed the same topic from the perspective of VCs and LPs (a.k.a “Limited Partners” who are investors in venture funds) in How to Due Diligence VCs.

As previously mentioned, the supply of capital to young and ambitious technology companies is no longer a constraint in Europe in the way it was 6 years ago. There are over 440 European VCs — more than 2x the number a few years ago. In addition, debt is now acknowledged as a a complementary source of funding alongside equity for venture-backed businesses. (Over 1.5 years ago, I started a series of content on venture debt which will be completed in the coming months.)

Given the immense pressure that startups and scaleups face after raising venture funding, it is critical to ensure that a business is well-designed for high sustainable growth in advance of raising external capital. This begins by understanding the purpose behind what the money is used for and what expectations startups have from their funding partners.

The first article of this mini two-part piece addressed the question “How much money should a startup raise?”. This one discusses “Who should a startup raise from?”.

To address both topics, founders should evaluate their high growth business and prospective funding partners in terms of:

  1. Business maturity: Scale vs. Predictability
  2. Purpose of money: Cash Flow vs. Growth
  3. Business objective: Flexibility vs. Cost
  4. Fund strategy: Fund Size vs. Growth Acceleration

Let’s dive into topics #3 and #4 in more detail. (First two are discussed here.)

Find the full article on our private blog

Practical frameworks, insights, & tips for European B2B software startups and scaleups on financial design, predictable growth, global go-to market success, venture & private equity funding, shareholder management, capital markets, M&A and exit strategy.

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