Introduction
Fundraising can be a very time-consuming task that requires significant engagement with investors, creating perfect pitch decks and attending networking events. This article will cover the tips to navigating through the process of fundraising smoothly.
Fundraising basics
The first question before entering into a fundraising round revolves around its purpose and the timing. Its essential to have a clear purpose and reason for fundraising. Sometimes start ups tend to go through fundraising just for the safety of having the funds for future purpose. This is not an ideal thing to start with. A clear purpose can help companies plan for the appropriate amount of funds to target. And, it’s important to show proper break down of total fund into different heads which investors get drawn to. A detailed appropriation of sought amount will allow investor to clearly understand the value of their investment. And, the amount they would like to contribute.
VCs & Angel Investors
After planning, finding the right investor is the next big deal. Factors like sector significance, stage of business and ticket sizes are essential before hunting for investors. Because, that will save time that might be spent on negotiating with the wrong investor for your company. Not all VCs or angel investors are sector agnostic. It is thus wise to spend time on researching the private equity firms. Choosing venture capitals or angel investors who are specifically looking to invest in the sector the start up belongs to. Ticket sizes also play a significant role as some large VCs do not opt to invest small amounts.
If the target amount is not very huge, crowdfunding can also be a good alternative. When you compare it to fundraising through VCs or high net worth individuals. Generally, VCs mention their investment range within which they accept deals. So, setting an eye on their investment criteria and ticket sizes are very important. Also, most of the private equity firms and some VCs are focused on funding only the scale ups. Funding start-ups with their series A or onward rounds reduce the overall portfolio risk. If the start up is in the seed stage, targeting a series A investor will not yield any result. But if the founder has a very strong connection with the partners, then anything is possible.
An important aspect is to consider whether the start up is looking for investors who will be consistently engaged with the company. Leveraging their technical expertise and industry knowledge to help it grow are both critical factors. If the aim is to look for investors who will not only provide funds but also support the start up throughout its journey, then founders need to filter such active VCs instead of silent or passive ones who merely provide the funds and expect robust results.
Alator Capital
Attending networking events can be very beneficial for seed stage start-ups. There are scores of events organized across Europe to help start-ups connect with similar companies. And here you can also meet founders who are on a similar path. Connecting with fellow founders and similar companies can provide valuable insights and information that can be significant for the company. Eventbrite is a great platform to know about such events. There are also a lot of companies similar to Entrepreneur’s Collective in networking space. Some particularly focus on organizing lunch events, pitch competitions et cetera for the start-ups.
Entrepreneur’s Collective also has a fundraising arm viz ‘Alator Capital’ that exclusively focuses on start-ups looking to fundraise. They use their extensive network of investors (VCs, private equity firms) to help start up find the right investor. And based on their needs and industry to secure timely funding for smooth operation of their businesses. Connecting to similar companies that supports fundraising also mean start ups can get guidance in deriving correct valuation for their business. They can also polish their pitch deck and navigate through the fundraising process effectively in a short span of time.
SEIS and EIS Schemes
One of the noteworthy thing start-ups need to be aware of is the SEIS and EIS schemes. SEIS and EIS are government approved schemes to lure investors into early stage start-ups. Investors who invest in SEIS and EIS approved businesses can get deduction on their income tax. Thus incentivizing them for the risk they undertake. Checking whether the start-up qualifies for EIS/SEIS scheme before entering the fundraising round is critical. And, showing it as qualified for the scheme in case does qualify would be an additional boost to lure investors. Another significant advice particularly is for female founders. And the advice is to specifically look out for investors who are specifically interested in promoting women led companies.
Many investors are focusing on investing on women led companies as part of their ESG or profit with purpose strategy. This can act to the advantage of start-ups with at least one female founder. Fundraising is a challenging process. And, having a clear purpose is the key to start with a solid base with a strong network of founders. Investors and companies who assist in the process makes the journey more convenient towards reaching the goal.