5 things to keep in mind when fundraising
Raising funds is on every entrepreneur’s mind. With the ecosystem maturing in the region, the supply of capital is increasing as well; which means there are more avenues for budding entrepreneurs to get capital to launch or scale up their startup.
However, before the excitement — or dread of asking for funds — settles in, below are the top things to remember to keep your head in the game for the long haul. Bear in mind, if you are founding a startup in the region, you are looking at an average of 5-10 years before you exit the startup. And whether this is your first funding season or fifth, there are some factors that do not change.
1. Focus on sustainable growth and show it in numbers
Every business wants to experience exponential growth. But there are downsides to it, as we are seeing with the likes of WeWork, Facebook, Uber, and many others – investors are becoming vary of this. You need to have a growth roadmap for the coming 5-10 years, and have defined goals and objectives for measuring your company’s success.
That said, your business model needs to reflect realistic growth prospects, and your pitch deck needs to concretely showcase what measures you are planning to take to meet your business objectives. Make sure they’re SMART, so you can showcase growth year-on-year in relation to your expectations and objectives.
2. Be clear in what you are expecting from investors, and convey that clearly
Entrepreneurs can never ask investors which idea they should start their business in. That’s a complete no-no because it shows the investor that they don’t even have an idea that they believe in, or know anything about.
That said, young entrepreneurs are often pretty open to taking anything that investors want to give them. This is worse than it sounds, as it seems that you don’t know what you need. Take a page from the book of software developers designing menus and give 1-3 clear set desires to investors, such as an exact funding amount, by when do you need it, and what other support are you looking for. It could even be introductions to an x number of potential clients within their networks. The point is, be clear and don’t leave room for guess work. However, be open to their advice. If they believe a client will not be good, learn why and handle the situation delicately, instead of letting it go or pushing it further.
3. Narrow down your research to partners and their previous deals
So you have a list of first, second and third priority investors. That’s a great starting point. Now you need to know about the previous deals and investments made by each of them, as well as what their interest lies in, where they were before, and if they are on their way out. All of this information is going to help you focus your efforts to target the right individuals at the right time.
While not all information is easily accessible, you’ll be able to gather knowledge from your network within the ecosystem. This is why it is extremely important to grow your network and stay on good terms with people.
4. Put your relationship with the investor before his investment in your startup
Not all investors are going to say yes. That’s just the hard truth that hurts egos when entrepreneurs have put in so much effort and resources into building their startup.
However, in the words of Rudyard Kipling, “If you can trust yourself when all men doubt you, but make allowance for their doubting too; If you can wait and not be tired by waiting,” and gracefully accept their refusals, you’re not only hearing their opinion, but putting your connection with them above their investment. And that has a lot of power in earning respect and keeping doors open.
While it may seem like one of the most difficult things to do, it will pay returns in the long term.
Connect with the person, not their money: that’s the basic rule of relationships. They can be much more beneficial in helping you scale up than their money.
5. Be strict with timelines and do not get pushed around
Investors can seem intimidating. And when you’re looking for their investments, it can feel as if they hold the power in the negotiations. But if you have a strong business plan, go in with a strong mind. Be confident that you’re not going to go under just because you don’t get investments. And if you think you will, then chances are there are holes in your strategy which the investors will see too, and not want to invest.
First, get your business model right. And if you’ve got that piece of the puzzle fixed, you’ll continue to grow without investments, albeit not as quickly as you’d like. Go into negotiations from a position of power, without the arrogance. And make sure you stick to timelines, and keep communication lines open, yet professional.