Fundraising is a crucial part of building businesses; it is also one of the most difficult steps, especially at the early stage. In the early stages of the business, it is not just about capital but also about selecting the right investor who can help strengthen the business.
After two years of large cheques and increased valuations, investors are now focusing on the basics of startup businesses and are stricter with their evaluations. Crisis creates opportunities, however, and now is one for founders to build sustainable businesses.
For the entrepreneurs working towards establishing a sustainable business, here are a few things to keep in mind as you start preparing your pitch:
1. Know your business and its numbers
Define the problem that your startup is solving and how it is solving it.
Backed with relevant data and research, founders need to prepare a strong pitch that showcases the problem and the solution, as well as the business model. Case studies or user examples would help investors understand the business model and the product better.
While preparing your pitch, remember to highlight the following:
- Market size (domestic and international in some cases)
- Your revenue model, current sales, margins, and user base
- Equity splits
- Cost of products
- Competition data
2. Plan a realistic future
Early-stage investors are betting on the team’s capability to build a successful and sustainable business.
It is crucial to be transparent about your business condition and plan your future accordingly. Prepare your pitch to include clear short and long-term goals along with actionable plans. Showcasing your previous goal achievements will also help investors gain confidence in your plan. Do not set unrealistic goals and projections for your business.
3. Valuation games
Valuation essentially quantifies the worth of the business and helps investors calculate the percentage of shares they will get in exchange for the fund. An early-stage founder should seek a realistic valuation matching the status of the business at the time of the fundraise.
Determining startup valuation is different for early stage and matured stage companies as early-stage investing is often based on the startup idea, founding team, and the investor’s preference. The pre-money valuation can depend on several factors including total addressable market, the market dynamics, founding team, and founder-market fit.
As angel investors take higher risk, they tend to seek lower pre-money valuations and higher equity.
4. Find the right investors
In the early-stage, funding is just not limited to capital. Finding the right investment partner will help founders get access to mentorship and guidance in building the business.
Founders should research about investors and reach out to those who have expertise in the startup’s domain. To achieve this, founders should ask themselves why they are raising the funds and who would be the most suitable investor to help them with their present requirements.
5. Networking and relationship building
Rejection is part of the process; your pitch will be rejected multiple times. But rejection does not always mean a closed door. Sometimes, investors may be interested in your business, but it might not be the right deal for them at that point in time.
Staying connected with them and sharing regular updates about your progress will help you build a rapport with them. You can also seek their help and advice from time to time. This will help them stay interested in your business and can join you when the time comes or connect you to other investors who might be interested.
6. Believe in yourself
Be open to learning from your prospective investors; they have seen several similar businesses and can provide valuable insights on how the business can do better. It is also important to believe in your own story and be able to make decisions that are most beneficial to your company. Numbers are important and so is the story. You know your story the best and should be able to confidently present it before the investors.