Updated: Oct 6, 2019
Every startup needs fundraising at some stage. Let’s be honest, the number of startups that have bootstrapped all their way to mass-market are a minority. In general it is safe to say that all founders need the runway guaranteed by an injection of funds.
The way how the funds can be helpful are different depending from the stage where your tech startup is. However, there are two main areas that characterise how the funds could be used: 1) If you have a founding team mainly constituted of technical founders - you will likely require the funds for growth marketing purposes. You will need budget to hire a marketing manager or to find a reliable agency that can plug into your team and support the customer acquisition that you require in order to grow. You will also need to combine paid and organic efforts and maximise your ROI.
2) If you have an hybrid team that mixes technical and non technical co-founders - you will need funds to develop your product and reduce the distance between your vision and what you actually deliver to your potential clients. Whatever the reason you need funds, there are a few things that you need to keep in mind. Some of them will be relevant even before you start to have fundraising conversations (such as the clarity on your business model or refining your networking skills), others will be more relevant when you are actually sitting in front of your potential investors.
Whether you’re a start-up getting an initial idea off the ground or a scale-up seeking to take it to the next level, that extra bit of cash can prove to be the difference. But how should we be going about it? In the digital age, one could argue that it has never been easier to raise a few extra pennies…
Choose the right style of investor
There are a huge range of different types of investor out there, and it is important to pick the right ones to approach if you want to have productive discussions. For those looking for full advice on this, VC fund Mozaic Ventures have produced this great overview of all the funding options available, from friends and family to corporate venture funds.
Depending on your businesses revenues and business model, there are a investors at every stage to help you. Angel investors focus on helping young and rapidly growing businesses, and there are accelerator programmes available for people who are wanting business advice and connections in tandem with their funding.
Furthermore, investors often specialise in a vertical sector or two, with technology being a particularly hot investment area at present. It’s worth taking the time to research the right type of investor and to find ones in your suitable industry, otherwise you’ll find your discussions to be particularly short!
Network, network, network
Entering competitions such as The Pitch, which specialises in giving small businesses a platform to be heard, can act as a gateway to fundraising. Even if you come away without the top prize, events like these are bound to be attended by prospective investors, presenting you with a perfect opportunity to network.
There are also large events for start-ups such as Slush in Finland or TechDay in London exist to bring together start-ups and investors. These events can be a great way to approach a large number of investors at once, so can be worth assigning the time to attend.
Outside fundraising events, think about how your personal network can help you find potential investors. Don’t underestimate the value of a personal introduction to a venture capital company or an angel investor. Many VC’s state on their websites that they prefer introductions through known connections to a cold approach.
If you are an early stage company, your personal network could also be where you end up finding the fundraising you require. Friends and family, not to mention business connections, can regularly be inspired by your innovative ideas and want to help, or to share the winnings with you. Don’t leave any stone unturned! One great way to start is to create a spreadsheet where you gather all the names and contacts of people that can help you either get the funding or connecting you with someone who can. List them and assign them a scoring from 1 to 5 to get a sense of who can help you the most. Than starts from those who can help you the most, of course!
Work hard on your business plan
We’ve all seen those cringeworthy episodes of Dragon’s Den, where Deborah Meaden, Peter Jones and the rest are asked to invest extravagant sums for a measly stake in a business that appears destined to fail. Don’t be that person – make sure you have a credible business plan before speaking to a single potential investor.
Producing a strong business plan can be a very time consuming process so make sure that you are really committed to fundraising before starting off as it will likely distract you from other tasks which would grow your business. A business plan will require financial projections which include sales performance, cost of service delivery and all the business overheads you will require.
You’ll also require a strong document to accompany the numbers, with information about the business, its unique value proposition and its leadership team. Try to show a potential investor why they should invest and give them a sense of what returns they will get on their money. This business plan, along with how the founders present the concept, will dictate the decision a potential investor will take so it is worth getting it right!
Be ready to explain how you want to use the funds To summarise what we have said so far, it seems is more difficult to find the right investor, than a generic investor. In a country like the UK (as well as in many other European countries) there are numerous incentives for individual investors to benefit from. However, this doesn’t mean people will give you money just because you ask them. In your pitch deck make sure you include a slide about the “use of funds”. Clearly show how much money you need and - most importantly - how you are planning to use them. If you need the investment to develop your product show a roadmap that you are planning to ship and give a sense of how it will benefit your bottom line.
If you need investment for expanding the team, try and articulate the specific roles you will need and where these new hires will bring your headcount, your company skills and culture.
Whilst, if your focus will be mainly marketing - show that you did your homework and you are not just referring to generic “marketing activities” but be specific on the KPIs that you want to achieve and the high-level strategy that will need to be executed to achieve them.
Value the founding team and the advisory team At GrowthMinds we are lucky to work with a wide network of investors. We often review pitch decks of nascent startups as well as more solid scale-ups. There is one thing that always strikes me: a lot of startups don’t include a proper presentation of the founding team and the advisory team.
No matter at which stage you are at or the size of funding that you are looking to raise: your team and your board are an essential asset for your business. Never, never, never underestimate them. Make sure you include a slide where you show all your backgrounds, efficiency, talent. This slide needs to answer one essential question: “Why are you guys the best people to execute on the mission you are presenting to the world?”
Have a look at crowdfunding
There are stacks of crowdfunding websites out there that are designed to help you. Indiegogo, Kickstarter and GoFundMe, to name but three, are popular choices and it is worth analysing the market before committing to one. These platforms are used beyond the startup world, and usually help founders to build prototypes and are based on different forms of incentives for the people who back you. However it is also worth having a look at platforms such as CrowdCube which are designed specifically for the so called “equity crowdfunding”. In this case your crowdfunding will look more like a round of investment. One of the top UK fintech startups, Monzo, used CrowdCube to raise £20 million of investment. If you don’t know the story of this crowdfunding success you should definitely read it.
It is likely that you will have a specific target in mind when starting your crowdfunding campaign. Should you miss that target ever so slightly, only some crowdfunding sites will let you take what you raised anyway. Others dictate that you must reach your target if you wish to take home anything at all. Small start-up fees can also be expected, so shop around before deciding on the best platform for you.
Crowdfunding also creates a feeling of community among your backers. If they are financially, as well as emotionally, invested in your product, they will feel more obliged to use your service further down the road. Last but not least, crowdfunding is also a great way to create connections with journalists for digital PR.
Go get your fundraising!
If you’ve got a strong business plan and a clear idea of who to target then start booking those coffees or glasses of wine with your personal network. Tell them that you are looking to raise some finance and see who they may know from your list of targets. Put your best foot forward and treat them as potential investors too, as you never know, they may end up wanting to jump on board.
It can be a scary process but it’s fun too so take a deep breath and jump in. Go get em!
Kate Fairhurst is the co-founder and CEO of GrowthMinds. GrowthMinds is a growth ecosystem that enables startups and scaleups to activate their target markets and scale up the growth of their client base.