Today show, we interview Shahid Chishty who is a former investment banker at Deutche Bank and Merril Lynch. He has worked with companies at all stages and now finds himself focused on early stage startups, mentoring and advising them on their funding and capital raising strategy.
We talked to Shahid Chisty about when a startup should start thinking about raising funds.
Then let's go back a little bit. If I'm a founder of a company, when should I start thinking about raising funds? Is it when I just have an idea, or after I've already made some sales and some some customer
traction? When is the best time? That's a very good question as well. And it's something that I think founders should spend more time on, considering. So I found, let's take the case of a founder who, who has a good idea, we thinks it's a good idea, he will probably have to develop that idea, he will have to bring other people on board to bring particular expertise in, and so on. And their various ways in which he could do that. So he could partner with them, or he could hire them. And event depends also on the expectations and the and the ability of the person to undertake not work. So it could be paid work, which would be actually more on you usual. So usually, actually,
people who are founding businesses and the early participants in the business would would normally provide was called sweat equity. Okay, tell
me about that I sweat
equity is essentially working together share in the company, okay. And
so a founder, again, has the opportunity either to try and find these people who will co found the business so with him, and usually that will then save save funds, which are normally extremely limited at the start. Okay,
so there's up like 5% of the company 10%, 1%,
what's kind of normal, it could be any of those actually, it really depends on how how much the founder needs those additional areas of expertise.
Again, I think if, if the founder can bootstrap there's term boots trappers who try and get funds as the businesses developing, okay, that's usually a very good way of proceeding, usually found will have to provide some funds him or herself. And those funds could either be personal funds, they usually are. And then actually, the second step of funding would usually be what they call friends and family around, okay, so you approached your family, your approach, close friends and other other acquaintances, talk to them about the idea, see if they're interested, if they're willing to invest with you.
And I think the main thing that founders need to bear in mind is that the earlier they seek financing, the more they're probably going to have to give away for their business. And that's why there's recommendation that founders try and use the term I use bootstrap as far as as possible. So for example, if you if you you have a good idea and and you want to get it financed, you could, for example, ask or seek for just as an example, say, $5 million, or $10 million, okay, if you do so however, the likelihood is, and this depends also very much on what type of business it is, and how much it can be expected to generate in revenues and profits going forward. But generally, if you're looking for file sizes of 510 million dollars, you would probably have to give away a significant portion of your company. So the idea is to bootstrap which would be maybe, you know, you get your first $100,000, okay, and give away a small percentage and get the product further developed. You then go and look for further equity as your product is even more developed. And at each step, you're giving away some equity.
Hopefully, you also try and develop some revenues as soon as possible revenues would obviously help to pay certainly costs and expenses that a founder will be incurring along the way.
So the the timing of when to go to investors, which investors to go to how to approach the investors
to ensure that you've got the right resources on board all of those vital considerations for founders and for startups. So