Tips to Raise First Time Venture Capital for Your Startup
Staying up late at night, sipping on endless cups of cappuccino while a breakthrough idea brewing up in your thinking pot and finally the realization that you need funds to bring the idea to life—Sounds familiar? Well, nearly every aspiring entrepreneur’s quest for funds begins this way. Armed with a brilliant idea, some early traction, and a phenomenal pitch deck, they set out to raise venture capital to realize their dream. They look for investors and make every effort to reel them in and get them to invest in their business. But, as easy as it sounds, fundraising as a first-time founder is no less than a Herculean task. So how should you go about it? Here are 6 key tips to help you ace the early-stage fundraising.
- Know Your Worth
First of all, ask yourself — how much money do you actually need? What is your capital requirement for the next 12–24 months? While some founders tend to answer such questions with a range like 4 to 6 million, this brings the investors to the next immediate question—how much fund do you exactly need? So, it’s crucial to have a definite amount in your mind while ensuring that it’s coherent with your financial plan, the growth strategy, and the associated marketing and sales costs. Hence, know your worth and calculate a concrete amount according to your data sets.
It might be a little intimidating to ask for a specific amount of money as there’s always a chance that the investment could come up short. But, it’s critical to be specific and confident when you talk money. Though being specific may not guarantee funding, it will surely instill greater confidence in your business model and strategy—which can pave the way to fundraising success.
- Do the legwork
For a lot of founders, the pitch begins when you shake hands with your investor and start presenting your 15-min slide pitch deck. But the truth is: you can win or lose a deal long before you even walk through the door. Even though you have a million-dollar idea, you will end up losing the deal if it doesn’t resonate with the investors you are pitching to. So, it’s vital to find the investor that best fits your business need.
Remember, finding the best investor is not all about wooing the person with the deepest pocket. It’s about having someone who can understand your business and believe in your vision. So, do your research and list out the investors that are interested in investing in startups like yours, in your sector and location. Dig in and learn everything you can about the investors including their interests, network, career, availability, and of course their temperament.
- Don’t Go For a Cookie-Cutter Pitch
Not all investors are the same. Some might be interested in learning about your personal story while some may not really care as much. Some might be eager to invest a lot of time to understand your idea while some may prefer to dig deep into the product specifics. In short, every investor will look for different things and to different degrees.
So, try to know more about each investor on your list and tailor your pitch to what you learn about them. You can have a few key points detailing the big problem you are solving, your proposed solution, and the uniqueness of your product along with your financials, target audience, business strategy, and exit plan. You can talk about these key aspects in every meeting but try to be flexible with the conversation beyond that.
- Get The Storytelling Right
While telling your story to the investors, make sure to clearly articulate and explain your vision. Give a clear idea of what you are. Make them understand your value proposition and where are you headed now. Also, explain why your solution is unique and why it can be a category winner. Be credible and confident but don’t try to oversell. Also, let the data underpin your pitch. Investors love solid data, facts, and figures. So, make sure to back your vision with proper data, documents, and KPIs.
- Keep On Meeting Other Investors
“Sounds interesting” Or “We could possibly invest €1m for the project.” — These are the common phrases that you are likely to hear from most of the investors when you pitch in your idea for funding. Many founders interpret these words as commitment and think they have a deal in the bag. And then, they make the biggest mistake — they stop looking for other investors. They keep waiting for 3-4 months until they realize there’s no more runway left.
In most cases, investors act nice and seem positive. But, that doesn’t always mean they actually seal the deal. Remember, it’s a part of their job. They never make a decision based on only one meeting, or two. They will be very friendly to get all the required information to make a final decision. Some of them will also meet you only to squeeze out the market information and end up investing in your competitor. So, you might not get a clear “Yes” or “No from the investors. Rather, you will hear “Yeah, maybe!” which will eventually turn into “Not this time.” So, no matter how positive an investor seems, you need to keep your options open and look to other interesting investors who might not be willing to go all-in but can add great value to your startup. Once you sign the shareholder agreement, you can wave all other investors goodbye.
- Embrace Criticism
For founders, their startup is like their baby that they are very protective of. And it’s obvious to be upset when someone criticizes your baby and question your ideas. It’s easy to walk around and say, “They don’t deserve it; I don’t need them anyway.” But, you need to swallow your ego and learn to embrace the criticism. Go back to the drawing board and find out what did go wrong. Are you telling the story well enough? Or it’s the way of pitching in which you are lacking. Or maybe the product isn’t promising enough. Replay every minute and figure out what you could have done better. Jot down the notes after every meeting and try to learn from your mistakes and improve your pitch.
Remember, the fundraising journey is not easy. It’s filled with painful no’s: no’s that leaves you disheartened in how quickly and rudely they’re delivered; no’s that are sugarcoated with a word of condolence like “let’s keep in touch” and no’s that comes unexpectedly when you are waiting for months hoping for a “yes” after a series of promising meetings and you never hear from the investors. Every time the no’s will feel heavier than before. But don’t give up hope and hang on tight and hustle till you get that one yes. Follow the best practices discussed above and you are all set to nail your financing round. Good luck!