Managing to raise capital is rarely easy, and can prove to be an uphill battle, even at the best of times. This is the case even though you have a stellar idea and your business is performing in the marketplace.
The fundraising process itself is a time-consuming endeavour and consists of a plethora of moving parts that need to be expertly executed in order to even get your foot in the proverbial door.
Whether you are fundraising for your Seed or Series B round, the process and steps are fairly similar – you might just have more practice by the end.
Your activities during your fundraising experience will range from storytelling to creating and developing materials, to sourcing and networking with investors, negotiating term sheets, to setting up data rooms – just to mention a few.
Let’s start by having a look at some things you should know when starting off your fundraising journey.
Company’s Fundraising Stages
Well, if you are thinking about fundraising it would be an excellent first step to develop a clear understanding of what stage you’re in.
Have any institutional investors invested in your venture yet? Are you the only one who has put in money?
Being bootstrapped means that until this stage the venture has been funded by the founders only.
Once you get your operations off the ground and have surpassed the concept stage of your venture you are entering the Seed Stage.
Now, you are most likely looking for money from family and friends and business angels, maybe even some VCs.
If you have managed to show your business model is working and you can demonstrate that you have the potential to grow and generate further revenues, one might say that you reached the stage for a Series A fundraising, which is followed by Series B, Series C, etc. – pretty self-explanatory.
Depending on your exit strategy for your venture, you might end up with an IPO 😉
We will be going into more detail about the different stages in our next article, so watch this space.
So, now that you understand which stage you are in, it is easier to understand your options of whom to fundraise money from.
Investors are not the same, they have different criteria, different ticket sizes and might even only invest at a specific stage and can offer you different kinds of support.
(Fools) Family & Friends
Most of the time, family and friends are the first people to invest in your venture after yourself.
These are people who know you and believe in you and what you are working on.
They should be easier to persuade to invest in you rather than a stranger, but might not have the deepest pockets.
What about these strangers? They might be Fools, or they might be angels…
Business Angels (BAs)
They are independent individuals who decide to invest in the business because they believe in the founder/-s and the venture.
BAs can be passive investors who only supply capital, however, some BAs really want to get involved and are able to help with strategic advice or with their network.
An early-stage startup can really benefit from the BA’s experience and support, especially if the BA is and has been active in the same industry that the venture is in.
Accelerators & Incubators
Incubators help you with expert advice and can be able to provide you with office space.
They are a good fit for early-stage startups – even when you are ‘only’ at the idea stage – and the environment is all about collaborative support and a bit more laid-back in order to give you space for creativity.
Accelerators can help you with mentorship, capital, and connections to investors and potential business partners.
The majority of accelerators do require the startup to have a minimum viable product (MVP) in some way and after acceptance, the startups go through an intense programme focusing on scaling the business.
Public Crowds (Crowdfunding Campaigns)
You should never underestimate an investor – your average person times a 100 or even 1000. Using a crowdfunding platform to fundraise can be very beneficial in reaching a huge number of potential investors who might even end up being end-users of your product.
Crowdfunding is greatly dependent on marketing, so make sure that you have this part down to a tee.
Side note: Make sure that you do have all the individual investors invest via an SPV (special purpose vehicle) otherwise you might end up with hundreds/thousands of individuals on your CapTable 😱
Venture Capital (VC)
Venture Capital focuses on emerging companies that are looking for significant funds for the first time.
If a VC decides to invest in you, it means that you have shown to have a great management team, have a big market opportunity, have an interesting pitch deck, have achieved positive early traction, and stand out from your competitors.
VCs tend to specialise in industries or if open to different sectors have teams focusing on their specialisation.
As VCs might have different funds, you should understand what criteria they have as some might focus on Series B only while others could even invest at the seed stage already.
Pick the right VC for you, people you can openly communicate with and feel comfortable sharing bad news with (trust us, this will happen), and a VC that respects your time as you can’t afford to waste it on things that slow you down.
Private Equity (PE)
Private Equity tends to fund bigger, more established companies that are looking for a capital infusion or sometimes even the possibility for the founders to transfer some of their shares or a total buyout.
So here we are looking at higher ticket sizes and let’s be frank: If you are currently looking at a PE investor you most probably will not be reading this article right now about fundraising 101s
But if instead that’s exactly what you are doing, well… why don’t you contact us?