Looking for investors and fundraising is a never-ending story of every startup. Donatas Jonikas, a marketing expert from Lithuana, surveyed more than 1.000 startups for his upcoming book Startup Evolution Curve where he covers also the topic investments. How can you grab attention of potential investors? What is the homework you need to do to be ready for every opportunity? Donatas provides his 9-bullet plan on everything important to attract the relevant people.
Fundraising is a process that takes time and is not as easy as you would like it to be. Therefore, you should start networking and developing relationships even earlier than you start the actual fundraising process. Not every investor is equally valuable for you even if they bring the same amount of cash. Keep your eyes open and try not to miss the chances to get in contact with potential investors or connectors to such investors.
Every meeting gives you experience. You’ll probably be rejected many times. But that’s how we learn – find out your mistakes or rejection reasons. Then update your fundraising material or even a business itself if rejection reasons are serious enough and concern the core of your business model. Just remember, ending the meeting with a rejection from the investor’s side is not the end of your story. It’s just a lesson to be learned, and the next day, you’ll be better at fundraising.
Introducing your business idea will require providing some facts. Usually, investors want to hear facts (not your assumptions or plain estimations based on some secondary data). These facts should back up the importance of the problem your startup is solving, provide feedback from target customers (how they like and buy your product), show how much revenue your startup is already earning (if not yet, then when it will start earning money and what exactly is needed for it to happen), when and how much profit your startup will generate. If you have no answers to these simple questions, you are definitely not ready to meet potential investors.
First of all, begin by doing a thorough inventory of your assets which could be used to develop your business idea. Nobody will tell you to necessary use them for your startup, but it’s always good to know what you have in your reserve. Try to estimate how much cash you could accumulate and what milestones you could achieve.
It doesn’t matter if you attract new investors, you must have strong marketing foundations. The main difference is that without investors, you’ll probably have to do more manual work to boost your marketing and tractions. But that’s not a tragedy – many startups do that and find out highly valuable information about customers, their needs, communications and distribution channels. What I mean is that you should always have a plan B, which allows you to develop your startup in any case.
Download Donatas’ infographic to help you attract potential investors – here.
The first step in preparing to communicate with potential investors is to determine what your cash requirements are over time. The easiest way to do this is by visualizing your company’s cash burn rate and projected development milestones. Basically, this means you know how much money you “burn” each month developing your startup and how much time is needed to achieve particular milestones of your project.
An investor may not necessarily know the exact figures your business will need to grow to the next key milestone. Therefore, calculate how much money you will need to achieve each of key milestones. Investors usually rely on your ability to make and communicate your financial plans. If they can’t rely on you, they don’t invest!
When it comes to fundraising, many founders get such an uncomfortable feeling like they are back in school and will have to go in front of the classroom to show how they’ve learned the subject and will have to answer the teacher’s tricky questions. That’s because they are not sure how well their homework is done and what questions the teacher will ask. The good thing about fundraising is that you can prepare well in advance and feel confident about your investor pitching.
Investors rarely have the time to read long business plans, so the “first impression” becomes more and more important. But still, it’s not enough to have just a great “elevator pitch”. The times when VC investors were chasing potential “unicorns” are already gone. Now most of them are looking for sustainable businesses which have a proof to be profitable and scalable. Therefore, if you prepare and optimize your fundraising materials addressing key issues, you’ll have much greater chances to start negotiation and get funded.
The amount of funds investors will be willing to provide to your startup strongly depends not only on how well your startup has been developed up till now but on how much equity investors will get for their investment. This is directly related to pre-money valuation of your startup. Generally, there are two main approaches to startup valuation: top-down and bottom-up.
It’s better to have in mind that investors will consider both: where similar deals in the same sector are being priced and the amounts of recent exits. Both of these factors can dramatically affect the valuation of your startup. Therefore, you should check what valuations are in the market before you speak to investors. Try to find other startups like yours that have already raised money and see if they’ll share with you what valuation they were given and how much they raised at a stage similar to yours.
Browse larger and smaller online platforms for startups like Angel List, F6S, Startup Valley, Innmind, etc. Create your profile, submit projects and product photos and upload videos. Some of them are large and well known while others are niche projects and target to a specific sector or geographical market. It doesn’t require much time to create your profile and to post a few updates when they are available. I wouldn’t rely on these platforms alone to bring you investors, but once you get in contact with your target investors, don’t lose a chance to show that you are a serious startup and your professional profile is well known everywhere.
Start by making a list of 30 – 50 investors you would be happy to work with. Focus on the top 5 angel investors or VCs you’d love to work with, but don’t hurry to contact them with cold email or regular online form submission. Such approach has some chances, but not too many. It’s not hard to guess that the best way to approach an investor is to identify the partner, principal or an employee in the investor’s company. Find such persons in your network and get to know them: check their LinkedIn profile, read their blog, tweets, see if they were featured in media. A good idea would be to get an introduction from another founder who has been funded by them or another third party who has recent and frequent contact with the target investor.
First of all, calculate what monthly expenses you have independently of your sales volume (such as rent, advertising, insurance, office supplies, etc.). The concept of lean startup suggests avoiding fixed costs in early stage startups, especially if you have negative cash flow (you spend more than earn). Variable costs should also be kept as minimal as possible. Always stay lean on expenses. If it’s not necessary, don’t spend money on that. Somebody might do the trash talk that if you can’t afford one or another thing, what kind of business you run then. Don’t pay attention to them and don’t go after the herd – you are creating a business and will enjoy its benefits once the profit shows up or when the valuation of the company significantly grows up!
More findings and practical step by step advice will be published in the up-coming book Startup Evolution Curve: From Idea to Profitable and Scalable Business. It‘s already possible to download valuable templates from the book. Save your spot to get this book almost for free during the pre-launch in November – December, 2016. Be among the first to find out best practices and most valuable lessons from more than 1,000 startups worldwide.