It is said that funding should be utilized for speeding up the machine rather than building it. It means once the product is built & when the time has come to scale the same, one should approach viable investors for funding. But before this stage comes a very vital moment of clarity:
a. Why are you raising capital?
b. What are you – before one has made mind to raise capital one should be clear – why he is raising capital & what opportunity it offers to the potential investors?
18-24 Month plan
You have started a business with a proper business plan. You have started selling the product/service, building distribution network, branding etc. Now in middle of the journey you thought that you require funding. Now you need to merge the business plan with fundraising plan. In next 18-24 months what are the milestones you are likely to achieve with fund raising?
Before approaching funding, it is very important to break even. Although it is not a prerequisite for raising capital, it places founders in power position in front of funder. The funding company will be calculating the future value of cashflows.
Expectations of investors
One should be able to understand what investors expect and what they are looking for? Founders should keep in mind that they are selling investment and not selling product. One should not mould the Vision of the company to match the investor expectations. Obviously, investors do not want to lose money and made to look foolish. One should be able to outperform investor expectations in terms of promised ROI, sales & cashflow predictions.
Outperform the competition
If you are outperforming most of your competitors in terms of growth along with good promise of profitability than investors might think that it is a time to get in, while there is still a perceived discount available.
One should be able to market themselves in front of the investors. Your marketing material should tell them the story about the value and potential of your company. Although one should invest time and money in marketing, but it should not happen that you keep burning cash on marketing and bankrupt your start up. Investors like organic growth & are enthusiastic about social networking effect without additional spend on marketing.
One should be good at story telling. Every brand & venture has its story. One should be able document that story. Every step of the journey should be quoted. E.g Airbnb story is about sharing economy. Story helps investor relate to things easily rather than any technical information which they simply can’t relate to. Your story should tell how you are resolving societal problems & reason why you started.
If you require any help for storytelling, business planning, fundraising, PR etc one should be able to leverage experts without hesitation. It can be friends or family members, freelancers, trusted mentors etc.
Divide & conquer
If you don’t have cofounder with fund raising expertise it may be worth looking for. Investors normally prefer multi-founder start-up as it is not dependant on one single person.
Learn to love rejection
Expect fund raising to take longer than you expect. Be ready for unexpected feedback. Learning to embrace & savour rejection is one of the best things that entrepreneur can do. Rejection will happen. Learn from it. Adapt. Build your immunity to it.
Connect the Dots
Believing that the dots will connect down the road will give you confidence to follow your heart. Contacts and people’s attention are the most precious assets. Don’t burn trust find ways to stay in touch, stay in their minds, build relationship and add value. Even after rejection one should be able to nurture relationships.