From eric tolic, a serial entrepreneur and growth marketer.
You’ve probably heard this mantra before: “Money doesn’t solve all your problems.”
This is usually the case with startups. Unfortunately, we live in a society that praises the ability to attract investment, often with complete disregard for the underlying business. While raising capital is not an easy undertaking, it should never be viewed as an end, but rather as a means to an end.
The entrepreneur’s perspective
Despite the fact that fundraising is commonly portrayed as a useful endeavor, in reality this is not the case. Before we look at the different steps required to back a startup, let’s first review the pros and cons of raising capital as a founder.
Advantages
• It increases the credibility of your company.
• It offers increased financial resources to cover expenses.
• It provides access to deep networks and industry connections.
Disadvantages
• They are subject to dilution of ownership.
• You may have less control over your operations.
• You could have increased the pressure to meet goals and deadlines.
Without a thorough analysis of the many ramifications involved in attracting investors, you could face long-term regret. To avoid this, it is crucial that you, as a business owner, are aware of the sacrifices you are making in exchange for money.
What is required to secure funding
Now that you understand how important raising capital is to the development of a business, let’s look at what it takes to raise finance. Whether you’re seeking funding from angel investors or venture capitalists, it’s important to have a strategy in place to successfully navigate the process.
Here are some key steps to follow as you work to raise capital for your startup.
1. Develop a business plan.
Before you start fundraising, it’s crucial that you have a clear idea of what your business does, what it needs capital for, and how it will generate revenue. That means you should create a detailed plan outlining your goals, target market, competitive landscape, and financial projections.
2. Determine what you need.
In order to raise capital, you must understand exactly how much funding is required to achieve your business goals. Consider all of the costs associated with starting and growing your startup, including salaries, rent, and marketing, as well as any other expenses you’re likely to incur.
3. Identify potential investors.
As a first-time founder, it is important to note that not all investors are potential candidates for your business. In fact, many angels and VCs have preferences related to the industries in which they have opportunities. So always do your homework when deciding who to place.
4. Establish networks and connections.
Building relationships with industry professionals is an important part of the fundraising process. Ways to connect with the right people include attending events, joining relevant organizations and using social media. This way you can increase the chances of an investment.
5. Practice your pitch.
When contacting investors, it is of paramount importance that you convey information clearly, concisely and persuasively. Consider getting advice from a mentor when crafting your pitch, as these individuals can help clear up confusion about various aspects of your business.
6. Prepare for due diligence.
Should you pique interest, the investor will typically conduct a more thorough evaluation of your business to ensure that it is indeed a profitable investment. Be prepared to provide any documentation requested, including records such as licenses, trademarks, patents, contracts and more.
7. Negotiate the terms.
Once you’ve secured an offer, now is the time to review the terms of the agreement. At this stage, entrepreneurs usually hire a lawyer to get advice on the best course of action. It is often beneficial to have multiple term sheets as this encourages competition and allows for greater leverage in negotiations.
In summary, raising capital for a startup can be a challenging and time-consuming process. However, if you follow the steps above and are well prepared, you can increase the likelihood of success in raising the funding you need.
