After putting everything together and getting started, you may be looking to get funding for your startup next. This step has to be done professionally. Your investors need to know that they are backing a professional team and at the same time the team also has to benefit from the whole funding exercise and not get shortchanged.
Depending on what stage of funding you are at, you will need different strategies to attract the right type of investors. In the early stages entrepreneurs do it mostly on their own but at later stages and when the company needs to raise large amounts of monies, engaging a broker or middleman to manage the process is not a bad idea. When raising funds, it is very important to understand a key few areas, which the investors will be interested in knowing very clearly from you. You must be able to demonstrate good knowledge on some of these points to attract interest from potential investors.
1. The Business: You must be able to show why your company has the best solution for the problem being faced in the market. You must also demonstrate why you have chosen such a business/revenue model for your company.
It is important to show a clear strategy of how you are going to get your product to the market and how you will scale your company to the next level. Investors can tell a lot about the entrepreneurs and the team by looking at their vision, how they have structured the company and their pitch.
It is integral to know your business inside out, any major lack of understanding your own business may raise some doubts.
2. The Market: Every business revolves around your customer. Who is your customer, what are their ages, sex, likes/dislikes. What technology platforms do they use? How can they be targeted(marketing)?
Investors need to know that you understand your target market thoroughly and that the market is interested in your product. If no one is interested in your product, you are targeting the wrong market, or you are not using the right platform to get your audience’s attention, the whole start up could be just a waste of time.
3. The Industry: A lot of blogs and books miss this one out. You need to identify your competition and your suppliers too.
Competition: We study our competition so that we know what we are up against. The idea is to make our company number one and that the future products should be in our customers hands not the competition’s. Therefore it is important to see what our competition is doing, find out their strengths or weaknesses. Does their product have a flaw or weakness that you are addressing? Is their hold on the market weak? Do not look at your competition as only rivals, keep an open mind as many collaborations can form between rivals to capture the market. Or new ones may appear from nowhere.
Suppliers: The chances of this coming out in a pitch are very slim, but it is important to show that you are tightly coupled with some good suppliers (and/or manufacturers). Many entrepreneurs underestimate the value of aligning well with key suppliers.
4. Valuation: An exorbitant valuation can turn any investor’s mood off. Entrepreneurs love their startups and their ideas, but to be too greedy could lead to you returning empty handed. We all want as much money as we can get, but you need to be realistic with your valuation. Depending on the way you have valued the company, you could ask for a bit more money; we all need a bit more money to keep the company running. But if you go overboard like say, 3-4 times what you really feel the valuation should be will lease to an early disengagement with the potential investors. Valuation is not easy sometimes it is more of an art than a science so spend some time bouncing your plans off others before you nail down the vacillation you want to pitch. We will look in depth into valuing your company later on.
As far as fundraising goes, it is important to show that you know what you are doing and that you are the right team for the job. The more professional you look, the higher the investors’ confidence will be in you, don’t stop from engaging some professional help if you can afford it.