What Every Entrepreneur Should Know About Fundraising
Fundraising: Love it or hate it, unless you are independently wealthy or bootstrapped, it is key to scaling and rapid growth for your startup. When done right, it can lead to lucrative partnerships with angel investors and venture capitalists.
In my experience, the process of fundraising is consistent. Here’s a look at the steps that were crucial in raising each initial angel round for my company.
Say you have an innovative idea for a mobile app, and you need funding to develop and launch it. Fundraising is not a one-time-only event — it consists of several financing phases that coincide with developmental phases of your business plan. The best strategy is to meet with investors right before, or after, you reach major milestones. In the mobile app scenario, your development and fundraising stages might look like this:
This is when you will seek out seed money to fund initial product development and design. A portion of this investment should also go toward marketing efforts to start creating a buzz about the product. More importantly, you’ll want to entice potential investors for the later stages of your business.
After your mobile app launches, it’s time to inspire an additional group of investors to start or continue to fund the company. Expenses at this phase can include sales, operations, branding, market expansion, technology, marketing, brick and mortar office space, staffing, travel, etc.
Once you have reached a major milestone you have measurable, quantifiable evidence that there’s a need and desire for your mobile app in the marketplace. Use your milestone as leverage for valuation from future investors. By gaining more funding at this juncture, you can continue balancing business development with user acquisition. Social media can play a prominent role in customer acquisition. For example, community managers can initiate intelligent conversations with brand advocates and key influencers like mobile, app, and tech bloggers.
Funding at this stage will allow you to pay for ongoing operations and expenses, marketing, technology improvements, innovation, new product launches, etc. It can also help foster partnerships for distribution and eventually lead to an IPO or potential sale of the company.
When pitching investors, keep it short and informative. Allow your true passion to shine through. Be careful not to share too many numbers and facts — just simply tell a story and don’t forget to include these elements:
What the company does
What problem the product/service solves
What technology is involved
What the market opportunity is
Why customers will love the product/service
As an entrepreneur — but more importantly as a human being — I firmly believe in the importance of people building stronger, deeper and more passionate connections, in business and in life. Networking is critical to business development and personal growth.
When we network, we’re meeting people and making potential connections with their networks as well. Investors often want to invest in, and with, people they know. When someone who has already invested in your company introduces you to other investors they know and respect, it carries weight. Attorneys, corporate professionals, entrepreneurs and brokers can all be great sources for leads on potential investors too.
In the end, fundraising boils down to one thing: You have to tell a story that investors really want to hear. If you can make them believe what you believe, then chances are your story will live on another day. Or at least, until the money runs out!
This article has been edited and condensed.
This article was written by Andrew Vest and published on YFS Magazine.
Andrew Vest is a Chief Problem Solver, entrepreneur, @YEC member and father. He helps simplify the complicated when it comes to Cloud as Director of Business Development @Redapt. Connect with @AndrewVest on Twitter.
YFS Magazine is the definitive digital magazine for startups, small business news and entrepreneurial culture.