Fundraising is a top priority for many early stage startups, and for good reason. Since your early goals focus around building and growing your business, it should go without saying that you need capital to get there.
Some startup founders are natural fundraisers, while others must work hard to perfect their pitch. In any case, as a startup founder you should get used to meeting with potential investors as it can quite literally make all the difference.
Whether you’re a born salesperson or a beginner, there are a few fundraising lessons to consider.
Raise When Your Potential Is High
If you’re fortunate, your company valuation will only go up. In the early days, however, it may turn out that your perceived value is at its highest point. Like a rookie athlete who has yet to play a professional game, the potential can drive the hype.
Raising funds at this stage can seem easy, especially if you’re able to generate some early excitement for your business. Interest at this point may be the strongest it will be for some time, with multiple investors interested in getting in on the action.
Early on, the sky is the limit. This helps with touting your potential. It’s also important to note that you haven’t failed at anything yet, so there’s little to critique or worry about if you’re well organised and have perfected your pitch.
Validate Your Business Prior to Seeding
On the other hand, another good time to raise funds is when you’ve established proof that your business is working. This means seeing clear evidence that your business is fulfilling a specific need or appealing to a specific customer. Not only does this help to confirm to you that your business is viable, it’s something that investors will want to know.
If you aren’t generating the type of hype that will have investors throwing money at you, (and most startups won’t), you’ll need to show that your business has some legs to it. If you’re able to show investors that this is working, then raising funds should be as simple as agreeing to terms.
Don’t Fundraise Desperately
The worst time to raise funds is when you’re desperate to have them. Most startups go through ups and downs with their finances, and there will likely be some lean months in your future. However, when you fundraise out of desperation, you’ve severely limited your leverage.
If the choice is closing shop, or signing a deal you wouldn’t otherwise have made if your back wasn’t against the wall; you’re fundraising wrong.
Don’t Oversell Yourself
Initial investor meetings are not necessarily the place to divulge your entire life story. Be prepared to tell your company’s story and decide beforehand what parts have merit. Be brief and to the point when explaining who you are, what you do, and where you want to go.
Investors want to leave the meeting with a good idea of what you’re about. You won’t convey that if you stammer your way through reading an entire 30-page business plan. Of course, there will be questions and you should be prepared to answer them.
In short, courting an investor is a lot like a first date. You want to make a good impression while at the same time not coming on too strong and scaring them off.
Know When To Say No
It may seem to make sense to grab as much capital as you can, when you can. The opposite is often true. Fundraising for the sake of fundraising is not a recipe for success. Remember, the more you raise, the more you’re giving away in the form of equity, board seats, and control.
It’s nice to be well-funded, but peace of mind can also come at the expense of complacency. Necessity is the mother of invention, and sometimes being up against the wall causes you to explore new possibilities. Innovation and creativity can often be sourced from a direct need for cost-effective alternatives.
Join us for a panel event on 8 May that will enable you to get inside the investor and entrepreneur mindset and find out what you need to do to raise capital in New Zealand. Hear from leading influencers over panel session followed by networking and drinks. Click here to register.