Tips all Entrepreneurs Should Know When Fundraising
One of the most common questions that entrepreneurs ask at the early stage of a company is - how do you secure funding? After all, it’s one the most crucial steps in developing a company and will give entrepreneurs the ability to hire employees, develop their product and take the company to new heights. And as the company matures, the process can be slightly different along the way – there are different objectives when raising seed funds, versus Round A, B, and C because at each stage the company itself is at a new level.
Fundraising is a full-time job for any CEO, no matter what stage of raising venture capital the company is at. The process involves speaking to hundreds of investors and having to tell the company story, the same story, over and over again. What’s interesting about raising venture capital is the minute an entrepreneur closes a round, they need to begin the next round! Often people are hesitant to ask an investor for funding right after they just said no. Why would an investor who just rejected a company reconsider participating, sometimes days later, for the next round? It’s quite simple and important for entrepreneurs to understand how an investor thinks – investors are often looking for a certain maturity in a company and now that a round has been closed and the company has the ability to grow to the next phase it is possible that they have actually reached the maturity that the investor was waiting for and they may reconsider participating.
One of the challenges that we faced at our company when raising funds, is that our technology is geared towards the automotive industry, where sales cycles are long and product development can take years. In order for us to build trust amongst investors, we needed to clearly communicate our vision and explain why our vision is so critical to the industry. Sometimes that involved bringing in industry analysts or potential customers and large brand names to explain to investors why our technology is game changing in the industry. The third party credibility provided a level of validation that built confidence and trust in our technology and the direction we were taking.
Honing in on the company messages and rehearsing those messages is an important aspect of preparation, especially when presenting a highly technical product to an investor. Crafting messages that break down the technology in a way that is discernible to a technical and non technical investor is what will communicate the company relevance and potential in the market.
Some tips that entrepreneurs should keep in mind when starting the fundraising process are:
- Choose the right investors: Investors can influence the direction that a company goes in and choosing investors that have the potential to take the company to a new level is critical.
- Strategy: Know the company strategy and stick with it. Know, if you will allow an investor to shift your strategy or not and explain why not to them. It’s imperative that the company really understands the market needs and wants to both achieve business success and provide customer feedback to your investors. The business strategy should be aligned with your customer base, getting in the trenches and being able to quote to your investors what it is that your customers want/need is always critical.
- Financial Outlook: Having a clear picture of the financial needs and financial future of the company that details what you expect to happen, costs, and margins are all very important when presenting to investors. Also, be prepared to defend your business plan and differentiate what is certain and what is uncertain on your plan. Investors want to see that you are in control of the financial future of the company.
An interesting point when presenting to investors is that the phrase 'I don’t know' can either build confidence or lose confidence depending on how it’s used. In general, if an entrepreneur is on top of the market strategy and business plan the phrase 'I don’t know' can be an honest and genuine admission that the company needs to look at something new that was presented to them and the phrase can validate that the rest of the presentation was authentic. However, if the phrase 'I don’t know' is used for something that you 'should know' then that type of admission can be fatal to an investment deal.
Understanding and presenting with these basic concepts are the keys to approaching fundraising with confidence and success.