Getting your fundraising strategy right
Raising capital is never easy, but it’s also essential for growing a successful startup. The hunt for investment is highly competitive and there is no guarantee of success, so knowing how and where to solicit funds is crucial. As always in business, preparation is the key!
To start with, it’s important to understand that in fundraising you are effectively “selling” yourself and your business opportunity. It takes a lot of work, and a little bit of luck, to find an investor who’s the right fit for your company.
In simple terms, you need a plan so that you can:
- assess the financing options available;
- decide on the correct course of action;
- agree a timeline; and
- ensure the internal resources, commitment and expertise are in place to properly execute the plan and meet any due diligence requirements.
Once the strategy is clarified, focus on the key priorities that will get you there!
Match the right investors to your opportunity
Fundraising is a time-consuming and lengthy process, so focusing on too many investors is a costly mistake. Start by identifying the type of investors that are interested in your sector and companies at your stage of development. Put together a list of potential parties, based on strategic fit and financial strength. Ideally, you want a backer who brings industry know-how and contacts, as well as money (including follow-on money) – so choose wisely.
Tell a compelling story
Investors want to see a scaleable business with a huge addressable market in which you can have a defendable market position. However, this is of no value unless the funders believe there is also a strong management team in place that can deliver on the opportunity.
Make sure that the business proposition and management strength is clearly communicated in your business plan and presentation. This, along with a realistic valuation and plausible exit strategy, is a winning formula for all financiers.
Simplify, simplify, simplify! Streamline the business plan by splitting it up into easily understood milestones. Quantify the resources and monies that need to be raised for each milestone. Remember that at early-stage funding you give away more equity to investors, so it makes sense to match your subsequent funding rounds to key milestones so that later money can be raised at a higher valuation.
Focus on building relationships with potential investors
It’s good to start the process early – i.e. before your funding needs become urgent – so that you can determine if a particular funder is a good fit for your company, and vice versa. Aim to get introductions to your target investors through your network and work on building trust through every interaction.
Follow-up regularly with interested parties, letting them know that you have achieved certain milestones. However, for many successful companies, a change in strategy may be required along the way and don’t be afraid to communicate this – after all, agility and the ability to “pivot” the business illustrates a capable management team.
Keep it going…
Never think of raising money in isolation – always have your eye on the next round. Use PR to promote the business, new products and customer wins to create the “sizzle” factor that will ensure potential investors are always watching your space!