From accelerators to crowdfunding, and angel funding to venture capital, early stage funding is evolving. At the 2015 FOLEYTech Summit, the speakers on “Exploring the Evolution of Early Stage Funding” panel discussed some of the key concepts and concerns companies should consider when seeking early stage funding.

At what stage will a VC invest in a company?

Each venture capitalist (VC) will have different requirements for emerging companies when they are considering an investment. Some will only require a proof of concept, while others may wait for the release of a beta product and for initial customers. However, the common idea is that VCs are looking for (at a minimum) a proof of concept, protected Intellectual Property, and interest from potential customers.

An additional requirement among many VCs is that an emerging company must have full-time founders before they will consider any investment. A VC is investing in both the company and the founders. In the eyes of a VC, until the founders are fully committed and personally invested in the company, there is too much risk to invest.

How do you value a company?

Valuing a startup can be a difficult task. Without revenue or significant assets, there is little fundamental value in an emerging company. In fact, early investors are not looking for fundamental value. Instead, they are looking for option value and an opportunity to put money to work at a later date. During initial Seed and Series A rounds, valuation is driven by the market, which generally provides for $3 million to $5 million valuations. Once a company has reached Series A, valuation can be driven by a multiplier of the company’s revenue.

Ultimately, investors are looking to make a profit on their investment. Generally, VCs are seeking approximately 10x their initial investment as a return. These investors can work backwards using their exit valuation, the company’s business plan, anticipated financing rounds, and an estimated dilution to back into a current valuation of the company. Unfortunately, this process is not much more than a rough estimate, as each variable is bound to change as the company grows.

Are there geographic differences in company valuations?

There are often differences between valuations for companies based on the East and West coast. On the East Coast, most valuation caps are in the $3 million to $5 million range, occasionally reaching $6 million if the company already has some revenue. However, the West Coast generally sees valuation caps in the $7 million to $9 million range. For convertible debt, however, some of the terms are more geographically similar. Most investors expect to see convertible debt interest rates between 5% and 8%, and a discount of 20% to 25%.

What are the most important things investors consider about a company when considering to invest?

The primary drivers of value in any emerging company are a product that is a differentiator, market opportunity for the product, and the management team. As a company grows, products can evolve, markets can shift, or the company may find it necessary to pivot. When this happens, it is important to have a management team that is agile and ready to adapt.

Management teams also need to be flexible and open to change within their own structure. Founders are often CEOs and CFOs of emerging companies solely because the role needs to be filled. As the company progresses, it may make sense for the founder to step into a more focused or technical role and allow the management of the company to be handled by someone who is better suited for such a role. Changes such as this should be evaluated not from the founder’s personal perspective, but rather from the perspective of what’s in the company’s best interest.

What are the best strategies to select an investor?

While finding and attracting investors can be a stressful endeavor for any emerging company, some entrepreneurs will have the interest of multiple investors and will be able to select the investor or investors that fit best with the emerging company. While there is no single factor to look for, the goal is to determine what each investor can bring to the company beyond money. Is there an investor that is an industry expert who could serve as an advisor? Is there an investor that has broad experience investing in similar size companies? The goal is to select the investors that will not only provide sufficient capital for the company, but provide other benefits to help the company grow.

There are multiple variables to consider when seeking early-stage financing. One size does not fit all. Keeping these considerations in mind can help founders when making decisions in their funding endeavors.