If you are a startup entrepreneur, you have probably already considered reaching out to investors for funding. Here are some things you should consider.
Do you need outside funding?
This is essentially the first question you should ask yourself before reaching out to investors.
“Funding isn’t free. I warn entrepreneurs at every opportunity that they must carefully weigh the financial consequences of taking outside money. “It may not only come with interest and giving up a large share of profits but can put a lot of pressure on your startup to deliver specific results on your investors’ timelines,” says Clive Butkow (CEO of Kalon Ventures Partners).
How much control and equity are you ready to let go?
This one is one of the most questions that entrepreneurs must ask before seeking funding. Accepting funding means you are trading a piece of your company and its ownership for money.
Will the money you receive for giving up 25% of your company in this next round ultimately return you far more over the long run than that 25% of profits would have put in your pocket? What about once you have given up 50%, 75% or more?
What is your role in the company going to be?
Knowing what role you intend you take during the funding process and later as your company expands is very important. Fundraising can be very taxing on the entrepreneur, and investors can be very demanding in the early rounds. There can be challenging questions in later fundraising rounds, depending on your current stage of business and debt situation.
“Business experience can be a large factor in getting funded. Some of the entrepreneurs I’ve interviewed have turned to hire new CFOs and CEOs early to help position them to attract more capital and harness experts in building a real business,” Butkow said
What does the investor bring to the startup?
While an investor will want to know all about your business and how and why it will likely succeed, it is also essential to know what value a particular investor or investing partner will bring to your company. Finding the right investor can change the fortunes of your company.
“You’re not ready to pitch or even create a pitch deck unless you know the type of investor you want for your startup. Capital is still plentiful right now. Raising money from angels and VCs is far more about what they can do for you besides the money. The money is just a tool that ties you together and gets them invested in your success,” according to Butkow.
Would you invest in this business if you were an angel investor?
Entrepreneurs must ask themselves whether they would invest in this business if it were someone else’s company.
What are investors expecting at this fundraising stage?
There are some business basics that any investor will look for. However, what investors expect and demand before considering writing a cheque can change at every round too.
Do I have time to invest in fundraising?
Fundraising can take time. That time can be used in various other ways to make your startup a successful one.
“Even the most successful startup fundraisers report that this can take up half of their time during early rounds. It may take 200 numbers to get a cheque, and in later rounds, the due diligence part can demand daily and weekly phone calls and meetings. That’s all on top of everything else you need to do for the business and to meet your obligations to any earlier investors,” Butkow warns.
What is the one metric you’ll raise on?
“Even if you have a two-sided marketplace startup that solves multiple problems, it is far easier to excel and impress investors if you can focus on one data set or metric. Keep it simple for them. Show them that you can consistently grow that metric between every milestone. What’s yours?” Butkow asks.
Am I prepared to answer investor questions?
A slick pitch deck and tight verbal pitch are great. Being ready to answer all the questions investors will throw at you and test you with can be a completely different ball game, according to Butkow. So spending some time to prepare for investor questions can be helpful.
Have I researched winning pitch deck formulas?
“Of course, you may never get the chance to field those questions if your pitch deck is a flop. Make sure you know what investors expect in a deck and what they spend most of their time looking at,” Butkow said.
Writing a pitch deck that will awe your investor is significant. Bring in the professionals if you have to rather than trying to do it alone.
We hope our article will help your startup reach heights of success.