What You Need for Fundraising as a Startup

February 21, 2020

Having started a business, you will understand that it is a continuous rollercoaster. Some days can be filled with ups & downs. One moment you’re on top of the world because your customer left you a great review, and the next moment you can’t sleep because your runway is getting tight. 

At some point in your startup career, you’ll have the need to grow and scale faster, or you need capital to build or launch a new product or service. This is going to require some additional capital and it is a good idea to look into outside investment as an option. When you start this process you can call yourself a fundraising startup.

6 Things You Need to Start Raising Money

1. Investor Strategy to find the right match

Photo by JESHOOTS on Unsplash

Who is going to invest in your business? Would you do it? Perhaps you already invested a big chunk of your poker cash into your business, and it’s time to take it to the next level.

But where do you find suitable investors? Someone that believes in your business for starters, but also someone that can be valuable for your company. And not only with money, but with knowledge and network.

VC or Angel?
Venture Capital (VC) is a type of financing that is provided by firms or funds to small, early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth and sustainable traction.

An angel investor is an individual that acquired their fortune in various ways – that could be someone like you – and wants to “gamble on unicorns”. 

Finding an investor might be easier than you think. First take a look around in your own network. You might know a bunch of high net-worth individuals from your immediate surroundings; your online poker buddies.

Go out there and get to know more people, a few tips how to do this you’ll find here: 5 Tips on How to Grow Your Personal Network.

2. Comms Strategy for a fundraising startup

You’ve identified a few potential candidates that might be interested in investing in your business, but how do you approach them? In my experience, this is a very delicate art. Luckily for you, there’s a strategy to it. Depending on your audience you will need to tailor your message. When you’re talking to your friends, you obviously have a different way of talking to them than when you’re reaching out to an institutional investor like a VC. A few tips for creating the right approach: 

  1. Find the right medium for your audience: Where do you find your investor? Is it through cold outreach on LinkedIn, or a friendly message to an old friend on WhatsApp. Think about your relationship with this person, and how this person is used to being approached. 
  2. Straight Line: Another tip on how to successfully persuade people to buy stuff is to look at the master of sales; Jordan Belfort. His “Straight Line Theory” will help you learn how your pitch needs to get closer to a ‘yes’.
  3. Compelling message: You’ll very quickly realize that every interaction matters. From the moment you say “Hi”, all the way to “the ask”. If you’re not analyzing your touchpoints and what to say and when, you’ll find it very difficult to find ambassadors for your business.

3. Investor Deck to present your business

Pitchdeck by RocketFuel Collective

A standard pitch deck has the following elements: cover page, introduction, problem, solution, business model, traction, the ask, team, financials & forecasts. A deck is a must-have for any fundraising startup.

While creating your pitch deck, focus on the important metrics. Sometimes what you believe is important to your business (let’s say creating compelling content for your users or ranking high in Google) is of less value if you look at it from an investor point of view. For them, it’s much more interesting to look at your burn rate and revenue, or for example the loyalty of your clients. 

A pitch deck can make or break the decision to invest in a company. It is smart to set enough time aside to make your pitch deck or call in the help of experts at designing them.

4. Growth Strategy to scale your startup

Photo by Julian Alexander on Unsplash

As an investor, I’d want to see your future plans reflected in a growth plan. As a poker player, you might already have the skillset to come up with creative growth hacks. Do you believe it has what it takes to grow your business?

Growth plans could mean user acquisition strategy; how are you going to acquire more users? Or business development; how are you going to approach your clients?

Don’t put your eggs in one basket, and have multiple revenue streams in place. For example, selling your product alongside advertisements on your website or platform and affiliate links. Recurring revenue is even better, for example; subscription plans, where your users pay a monthly fee. Think about your dogs, cows, and stars.

Dogs
These are not money makes per se, they might even cost money, but this is the thing that puts you on the map, that makes your fans love you or is the ‘necessary evil’.

Cows
Cows, or cash cows, these are your money makers mainly in the short term, this will keep your cashflow going until you have the time to roll out your master plan of world domination: your star(s).

Stars
This is your grand plan, your vision for the future and the ultimate goal of your company. As a small startup, it is extremely important to visualize and communicate your masterplan during your fundraising efforts.

5. Financial Framework

fundraising startups financials

It’s very important that your growth plans are reflected in your financials. Have a worst, middle and best-case scenario.

You can compare this to laying out a strategy of volume and winrate and how you expect to increase both of them over time.

When fundraising for your startup, it’s a bit more complicated as you’ll have to take into account the burn rate. In most cases, the burn rate goes up to realize revenue growth. You either need to invest in the development of your product, scale the team or spend money on marketing.

Whatever the plan and assumptions are, make sure to document it all in a financial model.

6. Legal Structure

legal-concept

What form will you raise your funds? Is it a loan, direct equity? What is the structure of the deal? You will need to have an answer to all these questions during your fundraising journey. In the most likely case, you will raise your first round of funding from friends, family & perhaps even some experienced angel investors in the form of a convertible loan.

Each answer will bring you a different set of legal paperwork and route you need to follow. Be prepared to have the following papers in place:

Term Sheet
“A term sheet is a non-binding agreement setting forth the basic terms and conditions under which an investment will be made. It serves as a template to develop more detailed legally binding documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is then drawn up.”

Shareholders Agreement (SHA)
“A shareholders’ agreement, also called a stockholders’ agreement, is an arrangement among a company’s shareholders that describes how the company should be operated and outlines shareholders’ rights and obligations. The agreement also includes information on the management of the company and the privileges and protection of shareholders.”

Convertible loan agreement
“Convertibles are securities, usually bonds or preferred shares, that can be converted into common stock. Convertibles are most often associated with convertible bonds, which allow bondholders to convert their creditor position to that of an equity holder at an agreed-upon price. Other convertible securities can include notes and preferred shares, which can possess many different traits.”

Are you already a fundraising startup and need help?

I’ve personally raised 6 figure investments for my startup and I’m working closely with the team who helped me realize this. Together we raised 7 figure investments for a wide range of young companies with motivated teams.

It was an overwhelming process, which required a lot of skills and knowhow that I didn’t possess at the time. I was fortunate enough to connect with experienced founders and business developers to support me during this time.

If you need any help or ideas surrounding the topics in this blog, feel free to schedule a call with me and my team. Always happy to help!

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