Next Startupper Challenge
Heron Mathis
The startup investment ecosystem has gained traction in the last ten years. While the construction industry has had a hard time innovating and the margins of startup investment was very low, 2020 ended with over $1.3 billion USD invested in new business models for the industry.
A startup only exists and makes sense if it solves at least one pain point in the industry in which it operates and, although the failure rate is high, success can be measured in any of the following six stages.
As in any project, the phase of analysis is crucial for the detection of a real problem in the niche market in which the startup wants to act. The challenge it solves for the industry will be key in determining the success or failure of the proposed solution afterwards.
However, it is not enough to notice this pain point; its necessary to assess the intensity or severity to evaluate the cost of the opportunity, as well as to consider other alternatives and competitors.
This analysis takes place in the pre-seed phase, also considered the idea phase because all it takes is to have the idea and convince someone to come and do it with you. It is a good time to lay down the legal basis for the project and translate them into the Partner Act.
What is primarily sought in the seed phase is to validate the business model. Important decisions will be made, like determining the methodology that a startup will follow. This phase seeks the first materializations of a startup. This can be done through developing prototypes, which are small experiments carried out to validate the initial idea on which a startup is based.
Its objective is the validation of the initial value hypothesis. An early-stage prototype of a development does not need to be functional, nor a viable product. It is not to be confused with an MVP (Minimum Viable Product), which must be both functional and viable.
Its time to make numerous iterations until you find the right solution. Validation of an idea is the process by which evidence is gathered, through experimentation, to make quick, informed, and risk-free decisions.
Certain hypothesis and initial assumptions should be proposed, and through a verification method and a criterion of satisfaction it will either be confirmed or rejected. The rejection, or non-validation, of the initial hypothesis reflects the need to pivot towards a new assumption.
As for the forms of financing, at this stage the bootstrapping dynamics like the one that starts and expands only by the personal resources of entrepreneurs, and the revenue generated by the company take center stage. In addition, public aid, business angels or the participation of incubators emerge as support agencies for incipient projects, a very common term in this ecosystem: FFF (Family, Friends, Fools).
The early stage indicates the beginning of a phase in which the idea is left to evolve until it becomes a product or service in the market. Its now the time to launch a test. It will not be the final version; it will now be tested to see its a Minimum Viable Product (MVP).
The minimum viable product is a model that does not have its full functions, making the test less complex. It is released as a first version, with the results and information being collected. After its release it should be analyzed to evaluate if it meets the needs of customers; if not, improvements are made with new versions that try to satisfy the user.
This phase is key and will help you fully understand the effect you are having on the scenario that was prepared in the previous phases. Being in close contact with customers, it is all about testing the terrain and expanding your audiences.
At this stage, in addition to the funding agencies seen in the previous phase, gain more value Venture Capitals and accelerators, which are entities that beyond supporting emerging ideas, also help new business models test their solutions and access customers. Another dynamic that continues to see more traction is crowdfunding between the circles of interest.
Funding at this stage is also crucial, either to cover the necessary changes or to continue onto the next step. In addition to the agents and dynamics already mentioned, in this phase the Venture Capitals and Corporate Venture Capitals take center stage, being the main difference between them that the former has a single objective: financial (the return of capital), while the second has a double objective: financial and strategic, prioritizing the generation of strategic value for the corporation.
Additionally, Private Equity also appear as institutions that invest in other private companies with high growth potential in exchange for controlling a percentage of the company or its shares.
Faced with a more widespread definition of the term startup, a scaleup demonstrates a proven business model that allows it to consider more ambitious goals, for example, internationalization, expansion to other sectors or hiring new professionals.
New markets are sought during the expansion phase and are critical to business continuity. In general, a more ambitious market is wanted, so international expansion arises. On the other hand, expansion can also occur in the same geography, but in different segments including new services or products under the umbrella of the same solution.
At this point, it is often necessary to reach agreements with large companies and obtain financing and support in their infrastructure to expand the business model both geographically and among entrenched customers.
This phase is not mandatory and does not always take part among startups. There are business models whose goal is to become a high value and long-term company. However, it is very common for the last step to be to perform an exit by selling the startup. Even so, not many arrive at this stage and those who do are characterized by their strength, high potential, and opportunities to continue to grow.
For CEMEX Ventures, driving the construction revolution is more than investing; it is committed to building together a journey towards success with hundreds of startups. Thats why CEMEX Ventures promotes events like Construction Startup Competition on the search for innovative startups in the construction world in order to help them the highest peak.
Are you a young entrepreneur between 18 and 35 years old? Do you have a startup less than 3 years old or a project/idea that you care about and would like to develop in the next months? Is it innovative, with a positive impact on communities and/or the planet? If so, apply to be one of the 100 startuppers of the year 2024!
Over the last few years, a new funding stage has emerged, pre-seed funding. A pre-seed round is a round of venture capital that is generally the first round of institutional capital that a startup raises. A pre-seed round generally allows a founding team to find product-market fit, hire early employees, and test go-to-market models.
As a general rule of thumb, funding should last somewhere between 12 and 18 months. It should be enough capital to allow you to comfortably hit your goals and the forecast you laid out during your pitching and fundraising process.
The size of pre-seed rounds varies quite a bit from company to company. There is no cut and dry amount. Research shows that round sizes can range anywhere from $100,000 to $5M at the pre-seed round. At the end of the day, you will want to weigh your business needs when setting valuations and determining how much to raise.
We sat down with Jonathan Gandolf, CEO of The Juice, every week during his pre-seed raise to breakdown what he was learning along the way. We boiled down the conversations into 8 episodes. Give it a listen below:
Raising seed-stage funding is a major accomplishment for a startup. Seed stage funding is the initial surge of capital into the business. At this point, a startup is largely an idea and will have little to no revenue. This stage is generally when a product and go-to-market strategy are being built and developed.
Over the past couple of years, seed-stage funding has exploded in round size. What used to be regarded as a few small checks from family and friends has turned into a multimillion-dollar round. Check it out:
From here, founders will need to reach out to potential investors, sit meetings, and share their pitch deck and vision to garner interest. Next, founders will work through due diligence with the hopes of adding new investors to their cap table.
At the time of Series A funding, the company has to be valued and priced. Thought must go into previous investments, as prior investors will have also purchased the business at a specific valuation. If an angel investor purchased into the company at a valuation of $100,000 just months ago, then new investors may balk at purchasing at a $10,000,000 valuation today.
Once the funding round has been completed, the company will usually have working capital for 6 to 18 months. From there, the company may either be able to move to market or may instead progress to another series of funding. Series A, B, and C funding rounds are all based on stages that the company goes through during its development.
It is important to remember that when raising your Series A you are setting goals and objectives for what that capital will do to your business. You need to raise enough capital to help you achieve these goals so you can go on to raise a Series B or future round of capital.
As of 2024, the average Series A funding amount is $18.7 million. A Series A valuation calculator can be used to get close to the number that you should value your company at, though you will also need to thoroughly justify your valuation.
During a Series A round, investors will usually be able to purchase from 10% to 30% of the business. Series A investments are generally used to grow the business, often in preparation for entering into the market. The company itself will be able to decide how much it wants to sell during its Series A round, and may want to retain as much of the company control as possible.
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