Starting a business may not require a ton of money outright, but growing it likely will. For startup founders focused on building a company from the ground up, the idea of fundraising is no doubt a bit overwhelming. It is hard enough to keep things running when there are limited resources, and there simply may not seem like time for the often arduous fundraising process. Given that fledgling entrepreneurs probably have a lot of questions before they can delve into the process and not much time to spend researching, here is a look at some of the common questions answered.
When should we fundraise?
Picking the right time to raise capital is often critical to the success of a fundraising round. A company obviously has to be on fairly strong ground, and the team has to know the amount of money they need, why they need it, and a coherent plan for how it will be spent. Of course, there also has to be a healthy amount of interest from investors, which clearly depends on the business’s uniqueness and trajectory. Knowing when to fundraise is just as important as knowing when not to do so, as a failed round could be pretty detrimental to a company’s reputation. Ultimately, companies should not consider seeking capital unless and until they are at a point where they can fully commit to the rigorous demands of the process. In addition, they must have strong company data that will demonstrate to investors that the company warrants an investment.
How much should we seek?
This is another tough question to answer, and the reality is that the answer really depends on a company’s needs. For companies looking to make extensive changes to its marketing strategy or product lines, a substantial sum of money may be needed. In other cases, however, a conservative amount may suffice to grow the business slowly. The important thing to remember is that companies should only ask for an amount that they actually need, without having to relinquish too much control or submit to stringent investor demands.
What investors should we target?
It is crucial that a company seeking a large capital infusion diligently research prospective investors, prior to even engaging with those investors and certainly before accepting an investment. An investment should be about more than just filling the company’s coffers, as a good investor should be able to offer some sort of strategic advantages as well. Investors clearly have a strong desire to ensure that the companies they give cash to will succeed, so they should be willing to provide advice, management expertise, and a network of other connections who can also help ensure that the company will do well.
How should we pitch?
A pitch deck may seem like an old school approach to enticing potential investors, but it continues to be a tried and true method of attracting interest. A well-crafted pitch deck should clearly and concisely explain a company’s background, vision, business plan, marketing strategy, and financial status, along with any interesting details that demonstrate how a company is different and innovative. The pitch should be colorful and creative, and it must be practiced and polished to complete perfection, as this will likely be the one chance that a company has to impress investors and elicit a decent investment.
How much information should we share?
The investors and firms involved in a fundraising round are going to want to know a lot about your company, and it is important to honor information requests without compromising important data. Certain financial information will have to be divulged, and things like customer lists, marketing plans, and intellectual property may be sought as well. Any information sharing must be done in a controlled manner such as via a virtual data room that has stringent security features. Companies should also consider asking investors to sign a non-disclosure agreement and ensure that access to data is terminated once the fundraising round has been completed.
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