Preparing to raise funds is not only a pivotal moment for any startup in their entrepreneurial journey, but it is also one of the most significant challenges they face. With the constantly evolving venture capital (VC) financing landscape, 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 such as Crunchbase can help with researching and narrowing down the pool of potential VCs 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, businesses want someone who will be able to look beyond the monetary gains and rather be a catalyst to their growth and future possibilities. Without the shared passion, investors will not put in the time required to help the startup 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 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 startups 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.
Crunching The Numbers
Similar to 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. Though the latter will differ in each round, 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.
Setting Deadlines
The truth is, if a startup 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, startups 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 your chances of successful fundraising.
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