Unlocking Your Startup’s Funding: Essential Tips for Securing Your First Investment”

This week’s newsletter is straightforward advice for startup founders looking to raise funding and scale their businesses. This is because simple advice like this can make the journey much easier.

We will be going through 14  of them. The first set of these tips is direct advice on what to do when raising funds. It can be termed the “hard skills”. The second set is more indirect advice featuring who you must be. It can be referred to as “soft skills”.   With each advice or tip, we hope it can be applied more specifically to the business and business scenario.

  1. Please do not ask for money too early: We will create a similar situation where the principle can be applied. For instance: a man and a woman meet at a restaurant. The man has intentions to get married to the woman. However, he doesn’t say anything at the first, second, third or fourth meeting. Instead, he focuses on learning about the woman and being a good friend. This same principle could be applied to fundraising. Trust, an investor knows the founder’s intention to ask for and raise money. However, there is a greater ability to hold that request until there is a relationship (small but sincere) between the investor and founder. With this principle, the investor will either invest or refer the founder to other investors in his network. Founders must learn to build a good relationship with investors so they can support them in more ways than monetary.
  2. Raise funds before you need to: Don’t start raising too late. The principle above can not be applied if the founder is already late on salaries. Fundraising is a long game of strategy. The winners start playing long before it officially begins.
  3. Get your numbers right: Numbers here include traction, forecast and multiples. Is your business demonstrating traction month after month? That is the best time to raise funding. You can easily build investor confidence and acquire the desired outcome from the investors. How much traction do you have? How much will you make in 2024? What are the numbers? What are the multiples? A simple description of Multiples by NYU Edu says “A revenue multiple measures the value of the equity or a business relative to the revenues that it generates”. As with other multiples, other things remaining equal, firms that trade at low multiples of revenues are viewed as cheap relative to firms that trade at high multiples of revenues. Understand your market and your numbers. Investors must not catch you unaware.
  4. Don’t give up board seats too early: As the company grows, more investors will commit more money. The larger commitments determine a board seat but it also depends. Even though they don’t get a board seat, they will bring opportunities to the company.  Also, be careful to consider investors who have good knowledge of the business sector.
  5. Invest in relationships: Investor relationships are great but founders must go beyond that and invest in the right type of advisors even at an early stage. It will cost more but better than what you will lose.
  6. Have a strong team: When raising, your team must be strong and independent to carry on with activities without ( the CEO) This is crucial because the investors will ask for updated numbers from the time the investment process started to the present day (when it’s about to be finalised). The more you raise, the more you need people who can be like you and run the business without you. Ensure there is a good management structure where all decisions do not have to pass through you.
  7. Sell a story: Fundraising is about selling a story. Let the founder who is better at storytelling and articulation do the pitches and networking. If not, invest in obtaining communication skills.

We have discussed practical tips when raising funds for the first time. Here are seven more tips you must “be” while raising funds

  1. Be patient. Fundraising takes time. Enjoy the ride.
  2. Be inspirational: Only inspirational people get the best deal in every fundraising process. Be a charismatic founder.  Know what you want and have a clear strategy to achieve it. When investors look at you, they should feel inspired. This should be the same for your team.
  3. Be honest: Integrity is important. Be very honest about your numbers. It’s okay if it’s not yet time to raise funds. Also, be honest about why you are trying to raise money from investors. Can you meet up with what they want? You cannot always jump at funding. Also, what do you want to do with the money? It must circle back to the true purpose of building an extraordinary business.
  4. Never lose focus: The focus should never be on the investors. The focus will always be on the customers. The goal is to scale your business and not “raise X funding”. Never shift your gaze on the actual prize and don’t get distracted with the struggle.
  5. Be curious: As the leader, you must have a good overview of all parts of the company. Continue to ask questions about the finances even though that’s not your favourite part. Understand how each brick makes the wall. Understand the market well. Ask questions about policies and how they might affect you. Understand the macroeconomic conditions. Know your craft and seek knowledge.
  6. Be careful: Desperate? it’s time to back off. Do not sacrifice too much equity but more importantly, do not sacrifice your company. Study the terms of the agreement and know what you want. Be careful because you need the best advice you can get.
  7. Be humble and very open to feedback from investors. Sometimes, pitch for the sake of it and get feedback from investors. You can also use this opportunity to network.

Conclusion:

In the journey of fundraising and scaling your startup, remember this: it’s not just about the money, it’s about the relationships you build, the integrity you uphold, and the vision you sell. Stay patient, stay inspired, and stay true to your purpose. As you navigate the complexities of fundraising, keep your focus on your customers, stay curious, and above all, stay humble and open to feedback. Your success lies not just in the funds you raise, but in the character you embody and the impact you create. Keep pushing forward with determination, and remember, the journey is just as important as the destination.

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