We are reguarly helping startups in their fundraising as well as analyzing a lot of pitch decks. From our long experience, we would like to present you 5 key fundraising tips:

 

#1 Do your homework

Time is always your most valuable asset, so don’t waste it. Find out everything you can about the fund: their investment strategy and focus, current portfolio, track record, the type of investor they are. Make sure to ask questions that build on the information that is already there. Nothing is more annoying than asking the obsolete – it simply conveys you didn’t care or engage enough.

 

#2 Nail your pitch – know your numbers

Your story needs to be sound – what problem in the market am I solving, how am I solving it and how will I grow and survive doing it: your raison d’être. But whilst you want a sexy pitch, you also need to be able to go into the nitty gritty details to back it up: monthly revenue growth and forecasts, your customer acquisition and operating costs and of course, your margins; make sure you understand what drives your cash flow! Be prepared to answer the uncomfortable questions and make sure not to exaggerate your financial projections – due diligence will do the relationship test for you.

 

#3 On being likable

This seems like an obvious one but you’ll be surprised how many startups fail to get past the first meeting due to this issue. In the eyes of the investor, if I am going to spend a lot of time with you but I don’t like you as a person, it’s just not going to happen: why would I choose to spend time with you if you make me feel uneasy? You need to convince the investor that the money is well invested because YOU are worth his time and able to lead a company and sell its product: lying, boasting, refusing to listen, being unable to accept criticism, those are not the sought after characteristics to start a business relationship.

 

#4 Timing and amounts

There is much disagreement on this one. Some experts will tell you to raise money when you need it least because it gives you more leverage, while others say there is no need to give a piece of the cake too early. Be certain when and how much you need and how and when you want to ask for it – be clear on your funding objectives. Remember, just like in any personal relationship, it takes two to tango. The reason you strike a deal is because there is a purpose for both parties, so you should neither be too cocky nor too desperate: but know your worth!

 

#5 Follow-up

After the first successful contact, be sure you keep up with what you promised: Show the investor how you will, and have achieved agreed targets, it will make him more likely to trust and invest his time and effort into you. Be cooperative and confident: you need to uphold your end of the bargain, and if it is a fit, that relationship will thrive.

Despite the vast amount of venture capital funding that startup companies receive every year (US$48 billion in 2014), many of them fail to succeed over the long term. Apparently, access to financial means is not the only important factor for success. Other essentials can easily be identified when trying to assess the success or failure of startups. Beginning with the underlying business idea, via the team, through to the business model and last but not least, what experts, entrepreneurs and managers tend to underestimate on regular basis: the timing!

Almost all multi-billion dollar tech-companies that have emerged in the last decade had one thing in common. Apart from incredibly well-working teams, enough funding and sometimes perfectly working business models, timing was even more crucial for their success.

But what does the term “timing” refer to? Lets have a glance at the past.

 

YouTube and the release of Adobe Flash

Until 2003 it was very difficult to view digital content online when using web browsers. Only two years later this problem was solved by Adobe Flash. Additionally, the internet speed had increased in recent years, so the timing was just perfect for YouTube. YouTube was not the first video portal, yet it is arguably the most successful one. Companies like shareyourworld.com tried the same thing earlier in 1997, but went belly up in 2001 due to inefficient cost structure (and probably due to bad timing?). One can see that the perfectly timed moment is even more important than a great idea.

Sometimes startups don’t necessarily have to cover all of the factors mentioned in the section above. In the case of YouTube, there did not even exist a working business model at first but was added later when the platform gained enough traction to implement a business model.

 

Airbnb and the economic recession

Airbnb, a website for private rent lodging, emerged during the economic recession when people were in need of extra money. Prior to Airbnb´s launch, experts predicted that individuals and households would never rent their private space to strangers. That was probably true under ordinary circumstances, but in times of economic downturn, their need for additional income prevailed over the inconvenience of renting out space to people they don’t know.

 

Uber and the rise of mobile devices

Uber´s success tells a similar story. While traditional taxi-companies struggled with increasing organizational and legal requirements and their inflexible structure, Uber came up with an organizational model which can quickly adapt supply to demand by providing individuals with the possibility to join their driver pool. Relying on the latest technological improvements in the field of smartphone usability in a time of enormous increase in smartphone sales and increasing acceptance of online services and payment solutions, Uber executed (and they did it against all odds) their idea at an optimal moment. Alongside great execution and an incredible business model, timing was their strongest asset to reach the status they now feed on.

 

Facebook and the fast spread of the internet

Both Facebook´s idea and execution were great but the main factor contributing to Facebook´s billion dollar business was – again –its timing. A fast spread of internet access and an exponentially increasing number of internet users created a suitable environment for social media platforms. While other companies like MySpace.com (launched in 2003) or SixDegrees.com (first social network ever to combine todays functions of a social network; 1997) did the groundwork for a general change of attitude concerning sharing of information and privacy online, Facebook was able to harvest the fruits of success.

At this years Ted Talks in Vancouver, Bill Gross, founder of Idealab, showed that Timing is by far the most important success factor coming in first before „idea“ and „team/execution“. Timing accounts for 42% of success of startup companies.

Thus given, one ends up wondering how to estimate the right timing for a startup. Especially nowadays where industries and business models get disrupted on a higher frequency than ever before.

Raising capital for your startup can be critical, considering a startups runway – mistakes could kill your project for good! External funding (Venture Capital) will enable you to grow your company much faster, more professionally and globally competitive. All of the startups which made it to the unicorn club in the first quarter of 2015, have been backed by several Venture Capital Funds and Business Angels, as stated in the CB Insights Blog Article.

Money alone never made a Unicorn out of a startup- it most definitely needs much more! Still if your business is in need of risk-taking investors, you should make sure to attract the right ones, at the right time, with a reasonable amount of money to gain enough traction, improve your product and eventually make it to the next stage. So, what are the best tips to get funding for your startup? Here’s five of them to remember.

 

#1 Plan your financing round in advance

One of the most common mistakes is that too many startups start looking to raise money once they have spent all of their cash. This is too late: once you are desperately looking for money, you end up in a very weak negotiation position, and therefore are tempted to accept any investment offer, under any circumstances or conditions.

A good timeline would be to start searching for investment at least 6 to 9 months in advance, even if you do not currently need cash at this moment. Per example, if you have just closed a seed investment round of 50K EUR, which represents a 9 months runway for your company, start planning the next round right away by setting objectives. If you announce tangible KPIs for the next three months in terms of traction, you will have solid numbers which will show investors your progress, achievement (even over achievements) and overall management capabilities. Don’t forget: working with investors requires relationship building, which takes time and trust.

 

#2 It is all about Smart Money

Many founders believe that raising money is just about filling your bank account and having a great burn-rate running “happily ever after”. This is obviously not true! Money alone keeps your project alive for another couple of months, but smart money gives you wings to fly! You could also think about it in this way: Money is just like petrol for a car – without a vehicle it will still burn, but at the end of the day will not take you anywhere.

Smart money also means that a startup doesn’t only apply to an investor: An investor also applies to be part of a startup’s growth because he or she can bring special added value to the startup. In fact I have realized that the best investors are willing to fight for a shot at the best startups. With the right investor you will feel like in a rocket launch – forget about cars and petrol, if you have the chance to reach for the stars!

 

#3 Profile your potential Investors

Venture Capitalists and Business Angels screen hundreds of startups per year, and quickly develop a set of criteria which help them judge if a startup is interesting to invest in or not. Getting to know-how an investor ticks is crucial, as you can nail your pitch right at this point.

According to the Angel Resource Institute, most investors base themselves on the following factors as being Best Practices in Dealscreening

1. Region: Most Investors have a strong preference to Ventures which lay less than two hours flight from their offices.
2. Technological/Industrial Focus: Investors tend to finance startups in industries where they have strong knowledge and expertise. Don’t pitch your Biotech startup to VC with focus on e-commerce.
3. Growth potential: Investors rate market growth potential as top factor when considering a company. This means for some that the startup is already generating revenue and for others that the startup has a viable competitive edge which will lead to fast market capture.
4. Management Team: Here, basic criteria often include trustworthy and commitment. Furthermore, the team has to be balanced, which means a founding team which includes technical, managerial and sales knowledge.

 

#4 A rocking pitch deck

The fundament for raising capital is a killer pitch deck, or in other words a document presenting your company in a simple and understandable way. Remember: the aim here is to hook the potential investor from the very first look. The pitch deck needs therefor to be extremely clear and concise, one which can be understood by everyone, especially if this person is not familiar with the companies sector. Ten slides are usually more than enough to give the overall picture. Realize that professional Investors and Analysts do not have more than 10 Minutes to decide, if your project is worth to dig deeper, or not – as they see a huge amount of deal-flow every day! I really think Guy Kawasaki’s nailed it in his article the only ten slides you need for a pitch.

 

#5 Take the most out of NO’s

Let’s face it: you will most probably get several rejections during your finding process. Fundraising is just like a sales process, so you will get to be familiar soon with the 10-3 -1 ratio: it will take you on average 10 meetings to get to three leads, and of these you may eventually get one investment. According to the Harvard Business Review, Venture Capital is even tougher. Only a tiny fraction of the total amount of startups applying for Venture capital money got investments, lower than 1%! You will probably fall several times in the 98 or 99% of startups rejected. And there is a lot to learn out of it. Does the investor see a problem in the team, market or strategy? Or is it just a misfit regarding the fund focus?

A good way to approach this is to get as much investor feedback as possible and aggregate them. You will probably very soon notice a clear pattern, which will teach you a lot about how your startup is perceived by externals.

 

Overall, it is crucial not to underestimate the fundraising process, which requires a lot of effort, time, network and specific expertise. From our experience, three to six months of intense fundraising has an opportunity cost which is always higher compared to hiring a professional advisory team to work on it. We are proud to have advised successfully more than 50 Startups and closed transactions with an overall volume of about 350 Million Euros over the last two and a half years.

To find out more how Venionaire can help your startup in fundraising, get in touch.