Preparing to raise funds is not only a pivotal moment for any startup on their entrepreneurial journey, but it is also one of the most significant challenges they face.
The venture capital financing landscape is constantly evolving; therefore, new businesses must know how to successfully approach the right investors to secure funding for their company’s growth and development.
Finding the right match
The first stop on the road to securing funding is finding the right investor. Whilst it might feel like a difficult task, several online platforms available, such as Crunchbase, will help with the research and narrow down the pool of potential venture capitalists or angel investors.
Whether or not an investor is suitable will largely depend on the space they are operating in, their knowledge of that space, and how invested they are in it. At the end of the day, any new business wants someone who will be able to look beyond the monetary gains and rather be a catalyst to the company’s growth and future possibilities.
Without the shared passion, the investors will not put in the time required to help the start-up out with customer connections, hiring in different geographies, or fundraising in the future. Therefore, finding the right one is vital to the company’s growth.
In a sense, a startup is practically marrying its investors, so the founders should perform their due diligence before committing to a long-term relationship. Investors will act as partners, advisors, mentors, and board members; hence reference checks need to be done to help make an informed decision. It is also best to ask the investor directly if they would introduce any of the founders they have worked with in the past; the transparency will help get the relationship off on the right foot.
Telling a story
Different types of funding rounds require slightly different approaches. However, there is one common and very important element to all of them– storytelling. Startups need to focus on telling a compelling story that will ‘sell’ their idea. The first eight to ten minutes of any pitch are the most critical as that’s how long it usually takes an investor to decide if they want to fund the company.
It might not seem like a long time, but start-ups can grab investors’ attention and get them excited about the project idea with the right preparation. Hiring a pitch deck-making agency as well as involving a content expert are two ideas worth exploring. Together they will help the start-up put the best slides and ensure the best narrative and story flow.
Crunching the numbers
As well as great storytelling, numbers matter a lot as they have the power to support the claims and ideas. For example, during a series B fundraising round, investors will expect to see signs of business growth. Therefore, the pitch deck has to include metrics, such as revenue, customer numbers and acquisition costs, lifetime value, the cost of goods sold, to name a few.
The deck also has to set out realistic targets and projections as well as include the amount of financial investment that is being sought. The latter number will differ in each round, but it should help the business for the next 18 months as a rule of thumb.
Knowing the numbers and showcasing the most relevant metrics will not only underpin the pitching narrative but also compel investors to believe in the company, resulting in them funding it.
The truth is, if a start-up does not set a pitching deadline for potential investors, they will always be in a fundraising mode. That could be detrimental for the business as less time will be spent on actually building the company. Additionally, if no deadline is set, investors might not take the business seriously.
Determining the deadline is an individual matter, and there is no perfect answer for defining one; different timelines work for different companies. However, start-ups should remember to give the investors enough time to do their work and outline their conditions in a term sheet.
Ready, set, fundraise
Founders and CEOs should consider fundraising as an obligation to their company. Raising capital is the most important and time-consuming job of any CEO, which requires a lot of preparation and research. While pitching rounds offer the obvious benefit of money; they are also an opportunity to expand the market knowledge and receive guidance moving forward.
Therefore, startups should approach fundraising pitches with the aim to learn first and foremost. Pitches start conversations. Making them fruitful and engaging, and showing passion, will increase new businesses’ chances of fundraising success.
Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic
Image credit: beer5020