Now that you have learned the core-concepts of startup fundraising and valuation, let’s talk about the mindest of a startuper. We already talked about the healthy greed of a shareholder and the intelligence of not gambling your life.
Ambitions are seeds to be sown in a soil of opportunities and watered with money. This especially holds true for startups who need to raise money to continue their operations.
But where to start? And what are the best strategies for fundraising? Read on to learn more about fundraising for startups and how to choose the right strategy for your business.
Startup fundraising is like an adventure
Startup fundraising is like an adventure because it’s full of ups and downs, surprises, and new challenges. The journey can be long and difficult, but it’s also exciting and full of opportunities. Don’t expect a walk in the park! Just like any adventure, there are things you can do to prepare yourself and increase your chances of success.
Things that will never hurt: doing your research, knowing your audience, having a clear vision for your business’ mission, and being prepared to pitch your idea. You’ll also need to be able to answer tough questions from investors and have a solid plan for how you’ll use the funding: this might sound like common sense but many times, entrepreneurs get so entangled in their enthusiasm and creativity that they forget the basic operating rules of the outside world.
Welcome the process as a reward in itself: fundraising is an opportunity to meet new people, learn about different industries, and get creative in finding ways to raise capital. So go out there and explore the world of startup fundraising – who knows what you’ll discover!
Get to know what the investing company wants ASAP
It is important to figure out what the investing company wants from you as soon as possible. This way, you can make sure that you’re on the same page and working towards the same goal.
The first thing you should do is research the company and their investments. See what kinds of companies they’ve invested in before and try to find a pattern. This will give you a good idea of what they’re looking for. Of course, you can directly ask but don’t neglect the edge that thinking and researching on your own can offer.
Once you’ve reached an understanding of what the company wants, you need to make sure that your startup aligns with their goals. Take a look at your business plan and see if there are any areas that need to be tweaked in order to appeal to the investing company – only if this aligns with your ethics and mission.
Finally, it’s important to be honest with the company about your startup. They’ll appreciate your transparency and it will help build trust between you and the company.
Find the proper lead
If you’re looking to raise money for your startup, the first step is to find the right lead investor. There are a few things you’ll want to keep in mind when searching for a lead:
1. Make sure they’re interested in your industry. You don’t want to waste your time pitching to someone who’s not interested in what you’re working on. Expertise comes from interest (99 times out of 100), interest stems from curiosity and curiosity is a byproduct of attraction: meet Jedi logic applied to investment. Start on the right foot!
2. Do your research. Know as much as you can about the person or organization you’re pitching to. This will help you tailor your pitch and increase your chances of success.
3. Be prepared. Have a well-thought-out pitch ready before approaching potential leads. This will make it more likely that they’ll take you seriously and invest in your startup.
Target a range instead of aiming for a fixed solution
When it comes to fundraising for startups, one of the most important things to keep in mind is that you should always be targeting a range instead of aiming for a fixed solution. This is because there are so many variables involved in the process that the chances of you obtaining the exact deal you dreamed of are almost non-existent.
For example, let’s say you’re looking to raise $1 million for your startup. Rather than setting your sights on that exact amount, it’s much wiser to target a range of $750,000 to $1.5 million. This way, if you end up raising less than you hoped, you’re still in a good position. And if you end up raising more than expected, then you have some extra money to work with.
Humans before sums!
In the early days of a startup, it’s all about the people. The team comes first, and everything else is secondary. That’s why the most important thing for a startup to do is to raise enough money to keep the lights on and pay their employees: working for free is never healthy!
Money is always tight in the early stages of a startup, so it’s important to be efficient with how you raise funds. One way to do this is by focusing on human relationships over pure financial transactions.
For example, rather than going out and pitching to dozens of Venture Capital firms, it’s often more effective to start with smaller investors who are more likely to understand your business and have a personal connection to you or your team. These types of investors are also more likely to give you helpful advice and introductions, which can be invaluable in the early days of a startup.
So when you’re raising money for your startup, remember that it’s not just about the money—it’s about building relationships with the right people who can help you grow your business.
The difference between a SAFE and a Convertible Note
A SAFE (Simple Agreement for Future Equity) is an agreement between an investor and a company that gives the investor the right to purchase equity in the company at a later date, usually in conjunction with a future financing round.
A Convertible Note, on the other hand, is a loan that converts into equity on a later agreed upon date which can be hypothetical, like when the company raises more money from investors.
Usually, the latter has more liquidity than the former but this is compensated by lower rates (because of less risks). The architecture of your Startup’s capital division must be reviewed frequently so your team does not lose control over the project in the process of raising funds!
Learn to deal with rejection
Rejection can be hard on the psychological level but mostly, it is about “wasted work” and cost of opportunity. You did your research and planning, prepared the perfect pitch: all of this cost you time and resources and the inner monologue saying “I could have spent this time better” can be grueling and hard to turn off at times. There is no clear path on this one: some individuals develop thick skin; others see failures as learning opportunities.
Most successful entrepreneurs tend to get a little mystical: you will need a grain of luck, you will sometimes resort to unconventional predictive or deductive methods. Some go as far as asking the Tarot… and can be successful, compared to SWOT analysis maestros who have the possibility to fail. No rule, hence, the temptation to go full mystic! In any case, you’re in for a hell of a ride!
If you can overcome these challenges (and many more), you will be well on your way to successfully raise funds for your startup. Good luck!
