You know the steps to startup fundraising:
- Target potential investors
- Get warm introductions
- Set up tons of meetings
- Get serious with a handful of prospects
- Make your pitch
- Negotiate your terms
- Sign term sheets
Voila, you’re funded!
While this seems straightforward, in reality the process is much more fraught. In the best case, getting funded can take months, and in the worst, you might end your quest without a single signed term sheet. Oh, and have I mentioned that it’s a full-time job? Physical endurance is one thing, but how do you prepare yourself for the mental and emotional toll?
Here are my 3 tips to get you from searching to funded while staying sane!
1. Startup Fundraising: Planning
The more you organize in advance, the better your chances of startup fundraising success. What’s involved here? I’m talking about strategic preparation. Develop a high level project plan and detailed workflow of all the steps you need to take: from identifying potential investors, to researching them, to developing a target list, to tapping your network to score referrals and warm introductions. It’s important to include timeframes to keep you motivated and track your progress, but also include a buffer because the process always takes longer than you think it will.
2. Startup Fundraising: Pitching
Once you’ve scheduled some meetings, do extensive prep beforehand. You’d be surprised how many entrepreneurs flub this by not preparing enough for meetings. This goes beyond the basics of practicing your pitch and anticipating questions.
One way to turbocharge your odds of success is to get inside the minds of your potential investors. This means trying to understand what makes them tick and being really up to speed on which kinds of investments they like, in which sectors, their typical deal size, and stage. Don’t be a stalker, but try to find out about shared interests — maybe schools, sporting activities, social, or professional memberships — anything you can leverage to build rapport and give you insight into how they operate. This will help you tailor your pitch.
Despite your best efforts though, you’re still going to hear no a lot. So develop a thick skin and don’t take it personally. Be confident enough to ask for referrals to other potential investors at the end of every meeting. Do this even, and especially, when the answer’s no.
3. Startup Fundraising: Pacing
The key to a successful raise is to make sure you stay on investors’ radar screen, but not to appear desperate. So do reach out with useful news, making sure you keep potential investors up to date on any successes you achieve, and also letting them know if you’ve added high profile advisors to your roster.
Don’t forget the other side of the startup fundraising equation too: if you see that the investor (or one of his portfolio companies) has had a win, reach out to say “congratulations.” Likewise, if you come across an article or some bit of news that you think would interest the investor (maybe something that references a topic you discussed), forward it to them. Basically you want to keep a dialogue going and use it to convey your business’ desirability, and viability, as an investment.
Of course investors will do their due diligence before deciding whether not to invest, but part of the decision, particularly if you barely have revenues and no cash flow to speak of, is motivated by whether or not they believe in you and the team you’ve assembled. This is true of all investors, but may especially come in handy when dealing with angels who are often driven by more than numbers and may be entrepreneurs themselves.
Take every opportunity to instill confidence and convince them that you’re a safe bet for their money. If you have more than one party interested, you can try to speed things along by making sure potential investors are aware that you’re entertaining several offers.
That being said, know when to fold ‘em. If and when it’s clear they’re not biting, move on. It’s all about cost-benefit, and the more investors you can get in front of, the better.
Do you have any wisdom to share on startup fundraising? Share your approach and results in the comments section below or contact Early Growth Financial Services for advice and support.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, an outsourced financial services firm that provides early-stage companies with accounting, finance, tax, valuation, and corporate governance services and support. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.
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