Here’s a checklist of what you wll need to bare in mind when raising funds for your startup company:
1- Do you need money? Why now?
In many cases, you don’t need to raise money. Especially at the early states of your business, you’ll need to operate on “sweat equity” for as long as possible and keep ownership of your business.
In order for your business to be investable, there will need to be enough growth prospecst for investors to make a return on their investment. If these 2 conditions are met, then you can proceed with the following:
2- Understand your options
You can raise equity, debt, or a mix of both. When raising debt you don’t have to give away ownership in your company, and, especially with all-time-low interest rates, that could certainly be attractive, but you should also understand:
– Debt is better suited for companies that have assets (either hard assets or cashflow), and;
– debt is more suitable for companies that already have positive cashflow.
The easiest way to raise equity is from the bank, or online lenders like Funding Circle.
If you are at an early stage, you are more likely to raise equity. The following sections outline how to approach investors to raise money.
3- Build a Pitch Deck Presentation
A teaser or pitch deck is a brief summary about your business and the investment opportunity for the investor. There’s no exact recipe on how to create a pitch deck, but you should be to-the-point and keep it visual. Remember that investors receive a lot of them every day.
You can use pitch deck tool to create a professional pitch deck. Remember to tell your story, know your numbers, and appeal to the investor.
Your pitch deck will need to showcase the investment proposal to the investor(s). You can use our company valuation tool here to value your company if you need help.
4- Do Your Homework
Research the type of investors that could be interested in your business. If you are raising equity, you can target business angels or Venture Capital firms (VCs). You can filter the potential investors according to 3 main categories:
a- Your growth stage
i. Early Stage investors ($0-$100k in sales): also known as pre-seed or seed investors, they value the team, idea and ability to execute the plan. They’ll usually expect a lower valuation of the company. They usually invest from $20k to $150k.
ii. Growth investors ($100k-1M in sales): also know as series A or series B investors, they look for established companies with proven track record which are ideally profitable already. They usually take lower amount of equity as they have less risk given the proven model reflected by historic sales of the company, and they have wider investment firepower which can range from $300k to millions.
b- Your industry & business model
Investors, especially VCs, tend to have a finite mandate so they can build deep domain expertise in a handful of industries and business models.
c- Your geographical market
Although some investors have a global mandate, in general they tend to focus on specific regions.
With this in mind, do your research to short list the right type of investors. Approach them with personalised emails, and if possible demonstrating to them that you took the time to study their mandate, previous investments, and current needs, so you can have a positive first impression and start off on the right foot.
Be prepared for a lot of rejection, I mean, possibly hundreds of times. You shouldn’t take rejection personally, and instead try to gather critical feedback so you can improve your business model and presentation to increase your odds with the next investor.