In this second Episode of the four short 15 minutes Podcasts, we are talking about fundraising. It’s obvious that if you want to start a business you’re going to need money. But you are probably wondering when to start fundraising? Am I ready for it? And how to prepare?
Timing matters and it’s more complicated than founders might realize, but it’s not just about picking the right month. Finding the right time to fundraise requires micro and macro-level strategies. There are really two angles to think about. The first is the macro perspective that takes into account the general flow of deals in the industry and
the appetite to invest in your asset class. Then there’s the micro timing that is specific – are you & the team ready to take investors on board, are you not giving too much say away early in the journey of your company.
Three key phases in early fundraising:
-Ideation phase: Ideation is the process of generating ideas and solutions for your company.
-Prototype phase: Prototyping your product.
-Post product launch: Here you have created the most value and you are able to show investors certain traction and KPI’S.
You have to be aware that you have to run, grow and develop the business and, at the same time, raise funds. This is a long and very demanding process. Therefore, you and
your team must be fully prepared for it. Once you have figured out when you want to fundraise, you need to know what kind of investor you are looking for:
- What types of investors are there and how to approach them?
In order to scale your business, you’ll probably need investors to enable the planned growth of your business. Therefore, it is important that you and your team know what
kind of investors there are and how to approach them. In the early phase of your company, there are probably four types of investors:
- Friends and family group. This is your best chance to secure money to get the business off the ground. If your friends and relatives don’t want to give you money, who will? and probably they will likely be more forgiving than outside investors when it comes to your business ups and downs. You risk-off course the friendships and relationships with relatives. Therefore, don’t get too informal about the business relationship. Be upfront about risks, present a business plan that the money will fund, and make sure that they can spare the money if the inBeer I Am is a podcast with inspiring people and stories in the brewing industry. All what I want to achieve with the podcast is share great stories and provide insights into the industry.”vestment goes sour. “Treat your family and friends as professional investors”.
- Angel investor. Another option is to turn to a business angel; they are people who trust in your project and want to help you in order to make a future profit. We are talking about an experienced investor who, in addition to providing capital to the company, will provide you with their experience. If you are looking for this type of investor, you can find them at local events.
- VC investors. Venture capital firms invest other people’s money, so if you want to reach them, you will need time, you will need to set up many meetings as there are several partners involved. Remember that VCs see a lot of deals and invest in very few. VC-money is not long-term money. The idea of a VC is to invest in a company until it reaches a sufficient size and credibility so that it can be sold to a corporation or so. In essence, the venture capitalist buys a stake in an entrepreneur’s idea, nurtures it for a short period of time, and then exits with the help of an investment banker.
- Crowdfunding. Crowdfunder – or “backers” – are eager to contribute their time and knowledge to your crowdfunding project. The only thing they expect in return is a genuine openness to their ideas. If you are open to interacting actively and regularly with backers and working with them on improving your product it can significantly increase sales early in your company’s lifecycle.
Choosing an investor is not just about raising funds, it involves a certain level of commitment, taking stock of what that investor can offer you, what expectations they have and what expectations you have before getting something concrete, the services they could provide, the degree of involvement they want to have in the company’s operations. These and many other questions must be taken into account to be able to take the next step.
- How to prepare for the meeting?
It is time to prepare for the meeting with your investor. Whichever one you choose, you
need to be prepared.
First, make sure you know your audience: Do research and understand the proposed
product-market fit, show some kind of proof of concept, have an opinion about the revenue model and the price point, and know your market & competition.
Secondly, you have to find a way to convince investors with a clear and direct pitch in a
And thirdly, you have to present your team, as they are not going to invest only in you,
so it is very important that your team has the necessary skills to manage the company.
Once all the above needs are covered and you have the investors on board, the next
thing you need to do is to provide solid reliable information (a data room). Make sure
that you have all the documents for the new shareholders, which should include your
strategy document, product, team, traction, market size, and minimum financials,
Secondly, you need to have thought through the terms & conditions before starting a negotiation with an investor. Thirdly, you should have some legal support from the start.
And finally, when you are very close to fundraising, check that you have a good feeling
with the person you are going to close the deal with, because you will have to work with
them for a long time, so don’t get impatient and keep looking for your best investor for
the future of the company.
3 Episode Nr. 17 Andries de Groen