What steps can entrepreneurs take to position their startups to attract the greatest number of investors during those critical, if occasionally intimidating, funding rounds?
Above all, fundraising is an important process that needs to be started on time. When a company has eight to twelve months of cash runway, that is the best time to start fundraising.
Founders have plenty of time during this period to interact with possible investors, hone their pitch in response to their feedback, and become “deal-ready.”
Despite the significance of being deal-ready, our “Venture Fundraising Landscape 2023” report, which gathered insights from interviews with 40 UK-based early-stage investors, shows that only 32% of founders are perceived as being at this stage when they make their first outreach to investors.
Deal readiness entails having a solid business plan, an interesting company story, and an organized data room. Careful planning and well-thought-out presentation are essential. A prepared data room and engaging story convey a readiness to interact with investors on a serious basis.
In addition to thorough financial data and analyses, the data room should show evidence of careful strategic planning and execution readiness. It is essential to have a strong business model and pitch that spells out the company’s growth strategy, value proposition, and competitive edge.
Recognize the dynamics of valuation
Another important component that has the power to draw or repel investors is valuation. The mismatch between a company’s valuation and investor expectations is a major trap. As a matter of fact, ninety percent of investors have noted a discrepancy between the founders’ expectations and reasonable market values.
It takes a combination of persuasive communication and objective market assessment to bring these viewpoints into alignment. When basing your valuation on current market conditions, be realistic and substantiate your estimates with comprehensive market research and hard data.
Be specific and honest about when you expect to turn a profit
Growth is accelerated by investment, but profitability is the end goal.
Depending on the various funding stages, different investors have different ideal timelines for profitability. It is ideal for founders in the pre-seed stage to project a 36–54 month path to profitability; in the seed and Series A stages, the projections should be 21–39 months and 12–24 months, respectively.
Startups must clearly demonstrate to investors how they will meet these expectations while firmly rooted in the realities of the market. Avert projections that are too optimistic. To reassure prospective investors, you need to present a solid financial forecast and a business model that shows you understand the market.
Know exactly what kind of investor you want to work with
In the fundraising cycle, you are investing in the investors as well as they are choosing to invest in you. In fact, investing is more than just a financial transaction—it’s the start of a long-term collaboration.
Therefore, it’s imperative that you take the time to find investors who share your values and aspirations and who can contribute more than just cash.
Having an investor with extensive industry knowledge adds value beyond funding. They probably have a thorough understanding of the market, clients, and rivalry. They probably have valuable industry contacts and a ready-made network you can tap into, having faced and overcome challenges specific to your industry.
Remain grounded and assemble a solid group of allies
Investing in venture capital is essentially an investment in human capital. Investors will find a company more appealing if its executive team is capable and well-coordinated, as this indicates operational maturity and strategic vision.
Indeed, a strong team frequently makes a difference for investors; in fact, 95% of the investors we spoke with gave the management team’s caliber top priority.
Naturally, investors are looking at more than just your team—they are investing in you. As a result, it’s critical to have realistic expectations for your role both now and after the investment.
From £59,130 at pre-seed to £121,515 at Series A, founders receive prudent salary levels that strike a balance between financial sustainability and motivation. Consider the equity stake you would like to have as well. Pre-seed stage founders typically hold 70% of the company, demonstrating their dedication.
Attraction laws
For entrepreneurs of startups, attracting investors and obtaining capital is a complex and occasionally discouraging process.
Founders must carefully plan and take thoughtful action to position their company for success in the lead-up to and throughout the fundraising process in order to increase the likelihood of success.