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How to Launch a Tech Startup and Raise Financing in the U.S.by@bokuchava
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1,879 reads

How to Launch a Tech Startup and Raise Financing in the U.S.

by Lasha BokuchavaMarch 28th, 2023
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Starting a tech business in the U.S. can be both a challenge and a privilege. While there are many opportunities, a large market, and wealthy customers, the competition is intense, and customers have high standards for product quality. In this article, I provide a basic overview of the key steps for starting a tech startup in the US.
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Starting a tech business in the U.S. can be both a challenge and a privilege. While there are many opportunities, a large market, and wealthy customers, the competition is intense, and customers have high standards for product quality. Nonetheless, the U.S. remains a hub of entrepreneurship and has produced some of the most successful startup founders.


In this article, I am going to provide a basic overview of the key steps for starting a tech startup in the U.S. The order of steps does not have to be exactly as I present them and shall apply on a case-by-case basis. I will also share some of my own experiences, highlighting what worked well and what to avoid. Although I feel it is more important to give a broader picture than to go into greater detail, I would be happy to continue with more in-depth discussions of each topic in the following articles if anyone is interested.


This article is intended for aspiring entrepreneurs who are considering starting a tech startup in the U.S. If you have an idea but do not know where to start, this article can guide you, whereas experienced entrepreneurs would probably already know most of this.

Step 0: Scope the idea

If you already have an idea of your product and market, proceed to the next step. At this step, it is imperative to clearly understand the scope of your idea.


  • What is the problem you are addressing?
  • What are you intending to do to solve it?
  • What is your product or service going to be?
  • What is outside of the scope of your solution?
  • How big is the market?
  • Who will use it and who are your clients?
  • Who will pay for your product and how?
  • What is your business model?
  • What are your aspirations?


Answering these questions will clarify the scope of your startup. Most of these will be addressed in the next step.

Step 1: Prepare a pitch

If you want to win over investors or partners, or even land new hires for your startup, you need to have an exceptional pitch. A pitch is a PowerPoint presentation (NB: remember to convert it to a PDF before sharing) that includes the following sections:


  • Opening/title page: According to Kieran Hill, Seed Partner at 20VC: “If you had a billboard in Times Square, what would it say?” – a title page looks more appealing if there is a big motto/slogan on it. In the case of our EdTech startup, we opened with the bold statement: “The most exciting way to prepare for a great future”.


  • Problem definition: Be specific about your target groups and their pain points.


  • [Optional] Existing solutions: Show how people are tackling the problem today and what solutions are already out there. Why is that not enough, or not solving the problem entirely? This will help readers understand why your solution (which will be presented next) is crucial.


  • Solution: Explain how you are solving a problem for your target audience and what sets your solution apart. Highlight 2-3 key elements of your solution.


  • Product: A deep dive into the key features of your product. Readers should understand, at least on a high level, how your product functions.


  • [Optional] Market: Describe the market for your product, including its size and potential for growth. This information is particularly important for investors, as they need to see that there is a viable market for your product. I mark this optional, as investors specializing in a certain field will likely have a sense of market sizes for different niches in that field.


  • Business model: Show how you plan to earn profit in the future (or how you earn already), who are your customers, who your suppliers or providers are, how you will receive payment, how much you will charge, etc. It is ideal if you can demonstrate how you will find customers, provide them with your product or service, and generate revenue from it.


  • [Optional] Traction: If you have already progressed beyond the idea stage, demonstrate your progress. This could be any metrics such as revenue, profits, product metrics, proof of concept, progress on product development, or other relevant achievements.


  • Financials (or projections): These are crucial for attracting investors – you need to show a clear picture of your current and future financial success by providing historical numbers (if available) and 5-year projections. This will demonstrate to investors that you have a big vision for your business. Typically, you would include key metrics such as the number of customers, revenue, and profit. As there are many types of profit, choose the one that most accurately represents your business. For example, I usually include gross profit and EBITDA in my analysis.


  • Team [depending on your current stage and personal preference, this section can either be presented at the beginning or the end]: Introduce your team and highlight their relevant experiences that will contribute to the success of your startup. The team can include founders, key team members, and strategic advisors.


  • Your ask: Typically, when pitching, you want something from your counterpart. This is where you showcase what you are seeking. For example, if it is an investment, specify the number of funds required and the intended use. If it is a partnership, outline what you need from your partner and what you offer in return.DO keep slides simple with only the essential messages, charts, and numbers necessary to communicate effectively. By doing so, you will be able to convey your message clearly and concisely.


Key DOes and DON’Ts

  • DO prepare yourself for investor Q&A, which will cover more details than the main pitch, such as profit and loss statements, cap table, product demo, product roadmap, incorporation documents, etc. For these purposes, founders usually create a structured data room to share with investors at advanced stages of communication.
  • DON’T overload your slides with too much information. This can be overwhelming for your audience and distract them from your key message.

Step 2: Build Your Founding Team

Building a strong and motivated team is one of the most significant aspects of launching a successful tech startup.


It's imperative to identify the key roles and competencies you require. Find strong co-founders who are skilled and share your passion for one or two aspects of your business’ success. It's also crucial to give them a fair share of the stock.


Negotiations between the founders and the first employees are critical, as these individuals will help to set the tone for the company’s culture and determine the equity and compensation structure for future hires. It's important to be fair and transparent in these negotiations to ensure a motivated team.


In terms of motivation, it is common for first employees in tech startups to receive equity in the company in addition to their salaries. The industry standard for equity allocation can vary but typically ranges from 1-5% for C-level executives (with the exception of a non-founding CEO, which ranges from 5% to 10%). This equity is typically granted through a vesting schedule, meaning the employee earns equity over a period of time (usually four years) rather than all at once.


Key DOes and DON’Ts

  • DO consistently seek out exceptional individuals to expand your network. Industry conferences and other events are great opportunities to meet new people and build meaningful connections.
  • DON’T approach networking as a transactional activity. Building authentic relationships takes time and effort. Avoid treating people as a means to an end and focus on creating genuine connections that can benefit both parties in the long run.

Step 3: Develop an MVP (Minimum Viable Product)

If you are an emerging startup with new ideas and business models, or a business with an innovative approach to solving a problem, then having an MVP is an essential step in product development. However, if you are a traditional business with an established business model or a business with products that already have high demand in the market, then you may not necessarily need an MVP, as there is already an established successful product or service.


Developing an MVP (Minimum Viable Product) is essential for tech startups for two main reasons. Firstly, it allows them to test the market and gather feedback from potential customers before investing significant time and money in a full-scale product. This helps reduce the risk of failure and makes informed decisions based on real-world data. Secondly, an MVP can be a powerful tool for fundraising by demonstrating the potential to generate revenue and grow in the future. This can lead to higher valuations and larger investments from individual investors, resulting in a higher average investment check for the business.


I subjectively distinguish three stages of MVP development: preliminary validation of demand (Pre-MVP), developing a prototype, and launching a commercial product on the market.


  • The Pre-MVP stage includes conducting market research (at the start, it is better to try using cost-efficient methods, such as interviews with your network) and defining the target audience. It can also be helpful to create a landing page for preliminary validation of demand through pre-sales and interest gathering. This stage involves a preliminary assessment of the key required features of the product, helps you prioritize the first steps, and assesses the potential demand for the future product.


  • Developing a prototype involves the creation of a demo product or prototype primarily intended for testing and gathering feedback from users and/or experts. The tasks of this stage include determining the features to be included in the prototype, creating a minimally functional prototype for testing, conducting testing with real users/experts, gathering feedback, and further refining the MVP.


  • MCVP (Minimum Commercially Viable Product) involves the launch of a functional product in the market to attract first-paid users, continued feedback gathering, and product refinement. The tasks at this stage include determining the necessary set of functions for launching the commercial version of the product, developing a fully functional product based on the prototype, as well as launching the product in the market and promoting it among the target audience. It is important to note that the MCVP will likely not be the final version of your product – you will continue collecting user feedback and refining your product after launch.


Overall, MVP development is an iterative process that requires constant evaluation and improvement of the product at each stage.


For me, the three guiding principles of creating an MVP are speed, cost-effectiveness, and no code. The ultimate goal of an MVP is to launch a product as quickly as possible for testing, gather feedback from customers, and integrate that feedback to refine the product.


  • Firstly, speed is a critical principle in MVP development. The faster a product can be launched and tested in the market, the sooner businesses can receive feedback and insights from customers, which can then be used to improve the product and make it more successful.


  • Secondly, cost-effectiveness is also an essential principle in MVP development. By keeping costs as low as possible, businesses can reduce the risk of failure and minimize their losses if the product does not succeed in the market. Building an MVP can take a few months and cost anywhere from zero to over $200,000, depending on the complexity of the product. Therefore, I believe that a founding team should be able to create a prototype or even MCVP at $0 cost. If your founding team doesn’t have the right skill set and capabilities to develop a prototype of your solution, you might want to reconsider the team’s composition.


  • The final principle of no code refers to the use of existing tools and platforms to create an MVP without the need for extensive coding. This principle is probably the most arguable of the three and is not always relevant (e.g. if there are no existing tools that can replicate the desired functions of your product). However, when appropriate, using no-code solutions and tools can make the process easier, more affordable, and the product more reliable at the initial stage. Based on my experience, stability, and reliability of the product are essential and almost always come before functionality.


To envision this, imagine an educational startup that is launching online music courses. For the platform, they can use very reliable software like, e.g., Zoom, at first but with limited functionality for music classes, or launch their platform from scratch straight away with custom functionality but likely questionable reliability (especially if it is developed in a short period). Based on my experience, in an MVP approach, the former is always preferred over the latter due to its higher reliability.


Key DOes and DON’Ts

  • DO launch a demo version for testing as soon as possible and use customer feedback to drive further development.
  • DO prioritize the most critical features to validate your product and make necessary improvements before a full launch.
  • DO experiment, but always maintain a clear focus on the core of your product and aim for profitability and sustainable growth.
  • DON'T overspend on MVP development.
  • DON'T use outsourcing.
  • DON'T create a complicated MVP.
  • DON'T write unnecessary code. Aim to create a simple, effective MVP using existing tools and platforms with no code.
  • DON'T scale too quickly. Test the product and refine it based on customer feedback before expanding too rapidly.

Step 4: Register Your Company and Choose the Right Jurisdiction

Usually, you can take the first steps without setting up a formal legal entity. Even when you start earning your first income, you can choose a legal structure that is easiest for you or one that you already have in place. However, as you start raising external financing, having a clear and organized legal structure becomes increasingly critical. This is because investors prefer a well-organized legal structure that protects their stake in the company.


When deciding on your initial legal structure, it is important to consider a few key factors. For this, ask yourself:


  • What is the primary market you will serve?
  • Where will your team be located and where is your intellectual property located?
  • Where will your target investors come from?


If you are starting a business in the United States, you might want to consider setting it up in states with favorable corporate laws.


One such state is Delaware, which is a popular choice among entrepreneurs both domestically and internationally. I personally recommend it due to its advantageous business laws, experienced court system, tax benefits, privacy protections, access to capital, and growing tech startup community. In addition, incorporating a company in Delaware is a streamlined process that can often be completed online with the assistance of an authorized filing service.

To register your company, you would need to complete the required paperwork, which typically includes articles of incorporation and bylaws. The process generally takes 2-3 weeks and can range in cost from $500 to $10,000, depending on the state, type of company, and your law firm rates. Additionally, you will need to obtain any necessary licenses and permits, which will vary depending on the nature of your business and the jurisdiction in which you operate.

Consider using cost-effective platforms like AngelList for company registration. You can find a helpful link for registering your company on AngelList in Delaware here:

Step 5: Raise Funding Fundraising for a startup involves many stages.

Usually starting with a seed or pre-seed stage, and continuing with “lettered” rounds (A, B, C, etc.). A seed (or pre-seed, which may often be skipped in my experience) round is the very beginning of the financing journey for a startup. This is when you are trying to validate your business idea and launch an MVP.


The main goal of seed funding is to raise enough money to keep the lights on and start testing your idea, bring your MVP to market and start generating revenue, proving your concept and product fit for the market. The process of raising seed financing can take several months, depending on the complexity of your business, your market, and your investor’s network. Raising funding for a tech startup can be a challenge, but with the right approach, you can significantly increase your chances.


Here are a few steps that can help you:


  • Master your pitch before approaching investors, which means practicing it at least 5-10 times with friends and colleagues (ideally with some experience in business). This will help you refine your message and delivery, making it more compelling.


  • When you feel ready to reach out to potential investors, start by pitching to "cold" contacts to further practice your pitch, and then proceed to “warm” ones. This will give you a chance to refine your approach and receive feedback before approaching investors who may be more interested in investing in your startup. Remember, you only have one chance to make a positive first impression.


  • Make sure you have at least 200-300 names in your investor CRM. Aim to have at least 20-30 warm contacts with 1-3 degrees of separation. These could be investors you know well through other projects or people in your personal or professional network who may be able to warmly introduce you to potential investors. Additionally, source 200+ "cold" contacts using platforms like CrunchBase, AngelList, and LinkedIn, or by conducting web searches to identify potential investors who may be interested in your startup.


  • Another way to level up your startup in investors’ eyes and gain some VC network is by participating in startup accelerators, events, meetups, and conferences. These events can provide valuable networking opportunities and give you exposure to investors who may be interested in your startup. Not to mention that if your startup is selected and validated by renowned accelerators, such as YCombinator, 500 Startups, Techstars, and others, investors will be much more willing to participate in your fundraising. Therefore, make sure you have a list of all relevant accelerators and events in your field.


Overall, raising money for a startup from investors requires preparation, practice, and persistence. It's important to remember that success doesn't happen overnight. Don't expect immediate results, as it's normal to receive only 1-2 positive responses (indicating that an investor is ready to provide soft commitment) in 100 calls. This does not mean that your startup is bad or not interesting to investors. This is just how the industry works. If you do not receive any positive responses in the first 50-100 calls, consider stepping back and re-evaluating your idea and the pitch, based on the feedback provided by investors.

Step 6: Launch [you can launch before seed, too]

The key difference between an MVP (or MCVP) and a full-scale commercial launch is the focus on customer acquisition and revenue generation. While developing an MVP may have been focused on testing a concept and gathering feedback, the launch phase is focused on acquiring and retaining customers, driving revenue, and building a sustainable business model.


It is important to understand your target customer, what drives them to purchase your product, and how to reach them effectively. There are a number of ways to attract customers, which I am not intending to cover here. It is crucial to test and iterate on these strategies to find what works best for your business. Additionally, building strategic partnerships and collaborations with complementary businesses can also help you expand your customer base and drive growth. It is also essential to have a clear understanding of your business model, how you generate revenue, and what your key performance indicators are.


Key DOes and DON’Ts

  • DO focus on perfecting your process before scaling too quickly. Take the time to test and refine your product and business model before expanding to new markets or geographies that require unique operations. Otherwise, you may end up making scaling mistakes.
  • DO experiment with different ways of communicating and reaching your target market while staying focused on your product features and functionality. Continuously make improvements to enhance the customer journey.
  • DO aim for profit and profitable growth. This means carefully managing expenses and investments, as well as focusing on revenue-generating activities and sustainable growth strategies.
  • DO pay attention to corporate governance. Establish clear policies and procedures for decision-making and ensure compliance with legal and regulatory requirements. This helps to build trust with investors and stakeholders and can support long-term success.
  • DON'T let external parties, even investors, dictate your moves or steer you away from your goals, stick to your plan and vision for your business, while being open to constructive feedback and suggestions.

Conclusion

Launching a tech startup is a challenging but exciting journey that can lead to significant rewards. With commitment, dedication, and the right steps, you can turn your innovative idea into a thriving business that generates millions of dollars in just a few years. The success stories of tech startups are numerous and inspiring. Companies like Airbnb, Uber, and Slack have disrupted traditional business models and created entirely new industries.


Over the past decade, the tech startup industry has seen tremendous growth, with new breakthrough companies and technologies emerging daily. Even now, the market continues to grow, presenting ample opportunities for entrepreneurs to succeed in their endeavors. According to recent data, the global tech startup industry is expected to reach $2.2 trillion by 2025, driven by advancements in Artificial Intelligence, Big Data, and the Internet of Things.



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