Whether you’re a start-up or a more established business, if you’re considering raising capital for the first time then it’s important to answer some key questions and make sure you have a solid strategy in place.
Raising money can seem overwhelming when you have little or no experience in doing so and it is definitely not a quick and easy path. If successful, the right investor can provide a much-needed cash injection and beneficial strategic alliance.
If an investment round is unsuccessful, it can spell disaster for a business. Given the risk, there are a few key aspects to consider before you begin pitching your business to investors that will help to ensure your success.
The first impression of your business lies with you, your pitch deck and your financial model. All these aspects must be complete and comprehensive, and present the best possible perspective of your business.
Your personal brand and what an investor may find out about you online can have an impact, so make sure you update key things like your website and any social media accounts that you have to reflect your professional story.
Ensure that you fully understand each section of your pitch deck and financial model, as this will elicit confidence from potential investors.
You should also understand what your potential investor is seeking and construct your pitch in a tailored way that inspires and convinces them that your business is worth their investment.
Make a hit list
Don’t go into an investment round blind, just looking for a cash injection without purpose. Be strategic and do some research on potential investors to find out more about them, who they’ve invested in recently and what their values are.
Aside from capital, what value can they add to your business? This where you need them the most. For my business, theright.fit, I knew it was important to align with someone who had expertise in online marketplaces and understood the opportunities for developing the product both in Australia and overseas. This was an important factor in deciding to go ahead with Airtree Ventures.
The advantage of doing your homework and having your investor hit list in place is that you needn’t wait for investors to come to you, you can go to them.
Understand the process
Take the time to educate yourself on the process of raising capital. Knowledge is power and these days, the information you require is readily available. There are great resources to be found online about standard term sheets, founder vesting, and the like.
As part of the process, you should also engage a legal team that can assist with the negotiations and execution of contracts. Having an expert oversee the process can help to avoid any oversites or mistakes that can end up costing you not only money, but precious time.
Don’t be afraid to ask questions. A good investor will expect that you want to know about them, their investment strategy, what success looks like to them, and how they can help grow your company.
You should not be afraid to ask to speak to other companies they have invested in to collect feedback. As investing is like a marriage, it is wise to know as much as possible about each other and to build trust before making the commitment.
Allow enough time
Raising capital takes time and you ideally want to be in a strong position when it comes to pitching to an investor. You are in a bad negotiating position if you’ve only got 30 days left of cash in the bank or are so busy working on day-to-day operations that you can’t allocate enough time to the investment process.
One thing I learnt from my own experience is that fundraising can be as consuming as a full-time job and you need to be able to dedicate mental and physical energy to make it happen. Building a support network that you can delegate tasks to will free up your time to focus on the capital-raising process. This will help to avoid burnout and ensure you’re making the best possible decisions for your business.
Solid planning and research are key to a successful capital raise. Not only will they help you determine when the time is right but they should also help you manage the process so that you reduce some of the stress involved to focus on the opportunities that the right investment can bring to your business.