Determine the financing amount
If the financing amount is too small, it will lead to the failure to promote the normal development of enterprises; Too much financing will lead to nowhere to use the funds. Therefore, the founder should determine a reasonable financing amount according to the development needs of the enterprise.
Determine company valuation
Enterprise valuation is the core of equity financing. After the enterprise valuation is determined, the proportion of financing amount to investors' shares can be calculated according to the valuation. Enterprise valuation negotiation plays a milestone role in equity financing. As long as the investor is not too cruel, such as asking for the right to buy back or betting, the transaction can always be concluded.
Generally speaking, how to value an enterprise is the result of the game between the two sides of equity financing negotiation. Although there are some objective standards, they are essentially subjective judgments. For enterprises, the higher the valuation, the better. Unless the enterprise is confident to go public directly after completing this round of financing, a round of equity financing with high valuation is quite unfavorable to the next round of financing. Many enterprises are locked up after completing a round of financing, mainly because the last round of financing raised the price too high, and the enterprises were constrained by the anti-dilution clause to lower the price for subsequent transactions, so they had to freeze.
Looking for investors
Sign a letter of intent for investment
After the investment and financing parties reach an agreement on the enterprise valuation and financing amount, they can sign an investment letter of intent, summarize the negotiation results, and prepare for the next stage of detailed investigation and investment agreement negotiation.
In fact, the letter of intent for investment is just a general legal document, stating that it is not binding except for confidentiality and exclusive lock-up period. The purpose of signing the letter of intent for investment is to give the negotiating enterprises a reassurance, so that they can concentrate on exclusive negotiations with investors at least during the exclusive lock-up period (usually 2 months). After signing the letter of intent for investment, the two parties may still overturn the transaction at any time for various reasons, and there are many cases in which the letter of intent for investment is signed but the transaction is aborted.