The fundraising process is different for every startup. It also differs at every stage of the project’s development. However, there are principles that every founder should know before starting to look for investment.
Read moreLet’s get one thing straight: not every startup needs to raise investment. New founders do it to reduce risk. Experienced founders know that raising money at the wrong time is an unnecessary headache.
Therefore, you should only consider raising investment when the business is in good shape and everything is going very well. Firstly, investment will not solve any problems that the startup is facing! Even if that problem is that you are running out of money. No amount of capital will turn a bad idea into a good one, will not help with idea validation or achieving product/market fit, will not turn a lazy team into a great one.
Secondly, fundraising is very time-consuming. On average, a founder spends 70% of their time on this task over the course of several months or even a year. This will take the founder’s attention away from the most important tasks, such as improving the product, managing the team, and acquiring customers.
Each startup represents three completely different businesses with three different goals and ways to raise money.
VCs, accelerators, and angel investors prefer to work with people they know, which is why a founder should network and build relationships before raising funds.
Conferences and startup events are great places to build these relationships. Not to mention online events that allow you to connect with people all over the world.
Another great way to connect with potential investors is to participate in pitch competitions. In the best case, you can find your future investor, or at least polish your pitch by getting feedback on it and finding out what’s wrong with it.
1. Make a list in your CRM of all the potential investors you would like to see as your business partners. Each investor should meet the following conditions:
They are active in your industry or market.
They have an excellent reputation.
They are focused on the stage you are currently at (pre-seed, seed, series A, etc.).
2. If you know potential investors personally, contact them directly. Otherwise, try to find mutual contacts and ask them to do an intro for you.
3. If you still can’t get in touch, know that many VCs love cold emails. Send a very short email. Introduce yourself and tell us about your startup in just one sentence. After that, add something interesting about your project, such as your team’s track record, KPI growth, key partners, and anything that makes you stand out. Attach a deck — no more than 10-15 slides. VCs don’t have time to read long emails or decks.
4. Meet with interested investors, update your CRM with notes about each meeting, what went wrong, what went well.
In each round, 80% of your time and effort should be focused on finding the lead investor, who is providing the largest amount of funding in that investment round and usually plays the most active role in working with the startup.
When choosing a lead investor, ask yourself: is this investor capable of taking you to the next stage and helping you with the next round? If the answer is yes, then this is the one you are looking for. In parallel, you should start talking to other investors who may also participate in the round. Ideally, allocate 20% of your time for these conversations.
Investors expect founders to know the principles of startup management and their market very well, as well as all their KPIs by heart. When an investor has to explain to the founder the main terms of a startup, such as LTV, CAC, marginality, the conversation quickly ends.
A successful founder knows and analyzes each of his competitors, and he has a plan to beat them. In addition, he should have a clear roadmap and know the purpose of this round, choosing the right stages and KPIs.
A founder is ready to meet with an investor if he is ready to answer the following basic questions:
How well do you understand your competitors?
What are you planning to do with the funding?
What is the next goal? What is the end goal?
What if you are wrong? Is there a plan B, C?
As a rule, every conversation with a VC contains an important lesson: the founder can learn what is wrong with his business and how to fix it. 80% of every meeting, VCs ask the same questions. This, of course, makes the fiftieth meeting a bit boring... However, the frequently asked questions are opportunities for your startup. If we do not have good answers to these key questions, you should change something in your business.
You don't need to start your search with big names. It's better to debut with small venture capitalists. This way, the founder can practice pitching and become a professional at it after several meetings. In addition, let us repeat: frequent communication with investors, even if it doesn't bring the desired result, allows you to identify real problems in the business model, product and marketing, thereby accelerating their solution and the growth of the startup.
After eliminating all serious problems with the business, presentation and business model, after finding out the answers to all the frequently asked questions of venture capitalists, you can start a discussion with large investors.
The article helped me a lot in developing my business. The authors tried to reveal the very essence of the issue of financial activity. More information could have been added.
Everything is written very concisely and clearly. The article helped me understand some issues related to finances and their management. I am waiting for the next issue of useful information.
Thank you for the informative and useful article. There were many answers to long-standing questions. Thanks to the authors for some details and explanations on finances.
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