Launching a tech startup isn’t for the faint of heart, and between trying to build your company while wearing dozens of hats at once, and attempting to stay as many steps ahead of your competition as possible, things can feel overwhelming. When you add to the mix the fact that every day that goes by means you have less money to work with, you might feel as if you’re constantly in survival mode. Understanding the essentials of startup funding can make it feel less terrifying.
One of the key elements to running a successful business in its early stages is, of course, funding, but the process certainly isn’t as straightforward as walking into a bank and asking for a loan. Keep reading to see what steps you should be taking in your startup fundraising process.
When Failing To Prepare Truly Equates To Preparing For Failure
Ben Franklin had it right when he wrote about preparation, and when you’re getting ready to embark upon the task of startup fundraising, you can’t do too much planning. One of the most important aspects of this prep work includes having a crystal clear picture of your current financial state and utilizing those numbers to develop accurate valuations and business projections.
Know what stage you are in throughout the funding lifecycle and prepare information accordingly — for example, series B funding is very metric and scaling focused. Having the right information will ensure that you can challenge investors on valuation, round sizing, and the overall business narrative throughout pitching and negotiations.
Here are some items you’ll want to have together before you go out to investors:
- A narrative
- An economic model speaking to your businesses growth and the unit economics of your products or services
- A pitch deck that connects the narrative, vision and team to quantifiable outcomes, goals, milestones, etc.
- An understanding of what kind of investor makes sense for your business. Building an insurtech product? Probably best to try and find insurtech-focused VCs and early-stage groups that can help point you in the right direction or connect you with the right people.
Not only is knowing how to get startup capital important, but it’s equally valuable to position yourself in a competitive way so that investors are clamoring for your partnership instead of it being the other way around. Let’s face it – the tech industry is perhaps one of, if not the most, aggressive industries to work in, so proving your value during this initial phase is key to future funding.
The Nuts & Bolts Of Funding
Once you’re as prepared as you can be, it’s time to hit the road and meet with investors. While this thought might make some weak in the knees, having the right tools to draw on will make this part of the process far easier to manage. Startups who are seeking funding are certainly looking to make waves in the business world, but you’re also looking to create an emotional connection with investors – in short, you’re selling yourself just as much as you’re selling your product or service.
Creating a solid pitch deck is key here, and as you practice your delivery late at night in your bathroom mirror, you’ll slowly but surely dial in your story until it’s perfect. After you’ve nailed your presentation and continue to work through the funding process, you’ll want to pay extra attention to matters of due diligence – i.e. once an offer is on the table you’re not quite done yet.
It’s important, as you shake hands and meet new people, that you track all of this information. One easy way to do this is a spreadsheet that contains info on each contact’s name, email, firm, title, average check size, vertical, similar investments, etc. The more detail you capture the better you will understand the landscape. It will also help ensure you’re talking to the right people. Notice that you’re not getting anywhere and that a lot of your contacts are entry-level? Probably time to level-up your networking and seek more partner-level contacts from the VCs you’re interested in pitching.
Sealing The Deal
Receiving an offer for startup funding is simultaneously one of the most exciting and relieving things that can happen in a company’s young life, but making sure that the terms presented to you are fair is a step that shouldn’t be overlooked. Working with investors requires a delicate balance between ensuring that you’re not forking over too much control while still receiving enough cash to extend your runway far enough to reach your company’s next milestone, and just because you’re handed a term sheet doesn’t mean that the negotiations are over.
Things like board seats, pro rata, liquidation preferences, information rights, board observer rights, and more can be very confusing for first-time founders. Be sure to lean on your legal experts, advisors, and team to make sure that you understand the deal and are capturing the best economics possible for your employees and your shareholders.
Consider the long-term impact of your partnership before you sign on the dotted line, and make sure you can confidently agree on mutually beneficial terms rather than taking the first offer that comes your way out of desperation. Remember those clear and accurate financials we discussed? Now more than ever, you’ll be relying on that data to determine which investor’s offer is the best one for your company’s needs.
Having A Partner From Start To Finish
Going through startup funding rounds isn’t the easiest process to navigate, and we’ve truly only touched the tip of the iceberg when it comes to each part of this task. Even experienced CEOs who have gone through these monetary channels before don’t always have the time, mental capacity, or the in-depth knowledge required to make the most out of what investors have to offer. That’s why airCFO is here to help every step of the way, ensuring that you have people on your side who are experts in fundraising.
Whether you’re simply thinking about trying to find investors or you’re ready to make the leap into securing series A funding, reach out to us today to see how we can help!