If you are looking to raise capital for your startup, you’ve reached the right article. Here you will be able to calculate the probability of your startup raising capital or getting funding, basically your Funding Score (P(f)). Let’s quickly jump to a set of questions:
- Do I have the right founding team?
- Enough traction built over the last 5 months?
- Well differentiated as compared to competitors?
- 100% confidence about product road map?
- Enough PR Buzz generated?
- Strong valuation confirmed?
- Investors confirmed interest and shared term sheets?
These questions should feel familiar if you are raising a round. Now if your answers to these questions are yes (and you have validated the same with top notch mentors) then you should do a massive investor reach out ASAP (trust me, you are almost on the verge of getting money)! However, if some or all of your answers are negative, then this article should help you in pin pointing areas which could mess up with your fund raising process.
Below, I’ve calculated P(f) using a scoring mechanism (based on my experience and the life cycle of companies I’ve been associated with directly or indirectly). There are two broad sections: Section A (Basics) and Section B (Wild Cards). While Section A deals with the fundamentals of business, Section B is more of “Does your business have that extra bit?”! All that you have to do is add scores for both sections to reach your P(f). So, here we go!
Section A (Basics)
This section is divided into five categories:
Founders: Experience & Pedigree (max: 25%)
- 25%: Successful ex-founder and/or 10+ years experience in relevant field/industry
- 20%: Unsuccessful ex-founder (irrespective of pedigree and/or experience) and Ivy League degree
- 15%: Relevant Startup experience (held a strong position in a successful startup) and Ivy League Degree
- 10%: Relevant Startup experience (held a strong position in an unsuccessful startup)
- 5%: Tier 1 college degree and/or less than 5 years experience in relevant field
- 0%: None of the above
You should not get happy/sad while looking at your score just now. There’s much more to come!
Growth/Traction: Numbers (max: 25%)
- 25%: Strong retention and repeat customers (GMV $100K+ Monthly Run Rate and/or >25 paying customers) or No Revenue but strong user base of more than 25,000 users achieved in less than 3 months for a product with a clear monetizing plan
- 20%: GMV $50k MRR (and/or >10 paying customers) or no revenues but more than 10,000 users (with the same filters as stated above)
- 15%: $25k MRR (>5 paying customers) or no revenues but more than 5,000 users achieved in less than 3 months (filters above)
- 10%: *MVP out (yet to gain traction) and [Stealth Mode or High Cost to Market Strategy (with a clear monetizing plan)]
- 5%: Idea stage with a clear monetizing plan
- 0%: Just idea
If your net score at this time is >30%, you are going strong! If not, don’t loose heart yet, there are startups which get funded even without traction..
Market: Size, Dynamics & Competition (max: 25%)
- 25%: Market > $10bn, growing >25% YoY, Strong internet penetration, Not more than 3 competitors, Proven business model elsewhere, Fast sales cycle, High Margins (>20%) with little outlays (payment gateway or integration costs)
- 20%: Market between $2bn to $5bn, growing >15% YoY, Strong internet penetration, Not more than 5 competitors, Proven business model elsewhere, Fast Sales Cycle, Average Margins (10% to 20%) with little outlays (payment gateway or integration costs)
- 15%: Market < $1bn, First player in the market
- 10%: Market is to be made, you believe your product is the future
- 5%: Market size calculation dicey, No proven business model
- 0%: Extremely high competition (more than 5 competitors, well funded)
Two more categories remaining, finish them up and see where you stand!
Product: Stage of development (max: 15%)
- 15%: Product Market fit achieved
- 10%: Problem Solution fit achieved
- 5%: Product seems unfeasible (and irrelevant to the existing market, might be a futuristic idea), there are questions around scale and primary revenue model is not in sight
- 0%: Only Idea and no product execution till now
Hype: News & Buzz (max: 10%)
- 10%: Awards (something worth noting) & Media Mention (some of the top news papers)
- 5%: Media Mention
- 0%: None
Sum up all individual scores to come to the final Section A P(f) score. Now, go to section B, it gets really interesting here:
Section B (Wild Cards)
There are two kinds of wild cards: Positive and Negative. Positive cards add to your score and negative cards reduce your score. Unlike Section A, there are no max limits on the Wild Cards. So, every time you see a card (a bullet point) that matches your business characteristics, add or deduct points from the total score. Here we go:
Positive Wild Cards! Add 5% if:
- Your startup is a tech company and you have excellent programmers (if you are a non tech guy, you’d never know if your programmers are good or not)
- You have been running your startup for more than 12 months, all using your own money
- You have a strong person as your mentor (someone who’s built companies before, and who can introduce you to people who matter)
- Your startup is already profitable (EBITDA/Sales >25% MoM)
- The founders are from an engineering and/or sales background!
- There’s a strong negotiator in your team (ever done a big deal and crafted it out so well that it’s beaming profit right from the day it started?)
- You have strong patents, trade secrets, copyrights (IP) or some relevant entry barrier which can be built at scale
- A company similar to you but in some other country was recently acquired by a larger company
Negative Wild Cards! Subtract 5% if:
- There are more than 3 co founders (specially if the work overlaps between them)
- You are a single Non Tech founder building a Tech company
- Co founders don’t know each other for more than 1 year or don’t have a compelling co founder story
- You are not located in main talent hubs (every country’s got some great startup hubs, be there, not elsewhere)
- Yours is a tech startup and you have hired bad programmers (you got fooled into hiring the wrong guys, but good that you know now!)
- Your startup has regulatory or legal or product liability risks
Now, sum up all the Section B P(f) scores and add them to Section A P(f) score to calculate your final P(f): Funding Score, and check the graphics below to see what your next step should be!
Finally Assess Your Startup Fund Raising Score
Caveat 1: Your chances of getting funding depend on external factors such as:
- Funding scene (bullish vs bearish)
- A competitor raising money recently
- Fund Size (specially relevant if they’ve raised a fund soon), historical performance, Appetite, Geo, Model relevance to the Investor
Caveat 2: While I’ve tried to pen down this article based on logic, the funding case for a few special startups will remain subjective and complex (it depends on various other variables which are difficult to comprehend at the outset and such variables are relevant to the business model or industry itself).
Caveat 3: If your scores are really low! Forget that you read this article! Startups are supposed to be revolutionary and world changing. Their impact is supposed to strike down inefficiency, vastly improve the quality of lives and bring to mankind, a beautiful future which might seem unimaginable to most. If you are someone who believes your startup is going to bring a major impact to the problems of the world, or if you can view the world as it shall be in 2050 and if you have a very strong sense of purpose (money/respect doesn’t bother you or maybe you have too much of them already), then these scores shouldn’t matter at all! You are much above these lame mathematical figures. Go, run and win the world!
Wish you all the best. God Speed.