Bringing on external mentors and advisors is one of the best things you can do for your early-stage venture. Not only do they provide valuable advice and connections, but having strong advisors also signals to investors that other talented people believe in you and what you are doing. Typically, ventures have a formal Board of Directors, who get legitimate control over the operations and major decisions of the venture. Many Ventures have a less-formal Board of Advisors, who they turn to for industry-specific and other more day-to-day advice. Finally, there are mentors, which is a very informal designation that more describes their relationship to the founder than it does to the venture. When you bring on Board Members, you’ll need to follow the rules you outline in your Bylaws. With Advisors, you get to decide the process, but it’s good to have a standardize system for onboarding new advisors.
If you are confident that you want to carry this venture forward, it’s a good idea to incorporate as soon as you can. Incorporating separates your personal assets from your business assets, and gives you limited liability. For nonprofits, you have to incorporate (and register with the IRS) if you want to take tax-deductible donations. However, incorporation does cost money (anywhere from $200-$1200 depending on the state and type of venture you incorporate), and if you opt for a C-Corporation, you’ll have to start paying taxes (even if you are pre-revenue). You will definitely need to be incorporated before you take any external funding or enter into contracts with other businesses or individuals. When incorporating, the big decisions include: what type of entity to incorporate as, what state to incorporate in, and the details within your Operating Agreement or Bylaws.
First off, let’s get on the same page - you only need to worry about splitting Equity if you have a Corporation (LLCs don’t have equity, they have different classes of members). If you have a corporation, when it comes time to raise funding, you’ll need to have the equity split between cofounders sorted out. There’s no magical formula for doing this, but there are a few approaches: the 50/50 or 49/51 split is fine when partners bring equal skills and dedication to the venture. If one partner dedicates a lot more time or brings more advanced skills to the venture, then they may get a larger majority stake. There are a few online calculators that you can use to get potential breakdowns, but what matters most is that the cofounders agree on the splits and that you get this down in writing with a Founder’s Agreement so that there are no disputes down the line, when the equity actually translates into real money.
Unfortunately, there is no clear-cut answer to this question. What you need to raise money depends on many circumstances, including your personal connections and creditworthiness, the type of venture you are building, and the traction you have achieved. If you want to raise debt financing (like loans), you are likely going to need either revenue or very good personal credit and the ability to put up collateral for the loan. If you want to raise equity, you’re going to need some very strong customer traction. Angel investors are sometimes willing to fund pre-revenue ventures as long as there is a clear market need and a solid team. Institutional investors will likely want to see revenue, Letters of Intent from stakeholders, or clear IP that obviously needs capital in order for it to be developed.
Congrats! If you are certain there are people who want your product and service and are willing to pay for it, you’ve made it further than most startup ventures. But now that you’ve proven market need, you need to prove that the need translates into dollars. For nonprofits, this will likely come in the form of initial grant funding. But for for-profit companies, you’ll need to start going after revenue. The best way to do this is to build your initial Minimum Viable Product (MVP), and sell that to some Early Adopters, aka customers who are willing to try out new products and services. Of course, if you’re building a medical device or other capital-intensive product, it won’t be feasible to go after revenue. In this case, doing extensive market research & customer discovery and gathering a handful of Letters of Intent from key stakeholders will serve you well.
Typically, early-stage ventures are incorporated as a legal entity, whether that’s a nonprofit, corporation, or LLC, or are preparing to incorporate. Early-stage ventures have some type of traction in the market, and are likely serving initial customers or users. The team has expanded beyond the founders to include a few core team members. Not all early-stage ventures will have revenue (which largely depends on the type of venture you’re building), but they have already tested out the validity of the venture and are now looking for resources to scale their operations.
Validation and Traction are both two very important, interrelated concepts for idea-stage venture, and many people use them interchangeably despite their differences. Validation is proof that people want or need your idea: it can come from observing problems, talking to potential customers/users, or getting testimonials. But even though people say they want something doesn’t mean they will pay to have it - that’s where traction comes in. Traction is proof that people want and are willing to pay for your idea - typically in the form of users on a platform, revenue, other investors lined up, or letters of intent from key stakeholders. Think of Traction as “objective Validation”.
This question has a pretty clear-cut answer - you should open a bank account for your venture as soon as possible. You can use your EIN number (which you can get online for any type of business, even if you are not incorporated) to open up a business banking account at any commercial bank. It is a good idea to do this sooner rather than later, because it can be difficult to look back and figure out what was, and was not, a business expense if everything is going through your personal account. This can make it hard to know how much you are earning (or spending) per month, how much personal capital you or others have contributed, and how the venture's finances look in general. If you choose a local credit union, you can likely open up a business banking account with No or Low monthly fees.