Funding your startup is one of, if not the most crucial part of creating the company. While bootstrapping may be ideal for a number of entrepreneurs, it isn’t always possible, meaning they will need to raise money from VCs or Angels in order to get things off the ground. Like anything related to humans, it’s possible for entrepreneurs to jepordise their chances of actually raising funding.
At the recent Techstars-4-A-Day event, which was held at the Rise hub in Cape Town, Alexandra ‘Alex’ Fraser (Silicon Cape) and one of the founders of Yoco, Carl Wazen, gave the audience some tips on raising funding for their startup.
“Most entrepreneurs don’t start raising funds early enough,” said Fraser. “Give yourself time to raise funds.”
This means that many startups only start looking for funding once the gears are in motion and only give themselves around three months to accomplish the task. It’s a crucial step that should be looked at as soon as possible.
Seed and early stage capital are important parts of a startup’s growth. While approaching a VC or bank may not be viable, there are a range of ‘Angel’ options that can be explored.
“Don’t skip the step of raising from friends and family. You need people that have your back and there’s more flexibility in that world,” says Wazen.
“The institutional round is a big milestone for your company. Raising it as late as possible is best.”
Fraser went on to say that entrepreneurs shouldn’t spam VCs for funding with emails and mailing lists. If they do, 99% of the mails won’t get a second look and first impressions are everything.
Entrepreneurs need to do their homework on which VCs to approach and which funding stage they specialise in. This requires entrepreneurs to do their research and find out what a VC’s criteria is for funding.
“Don’t approach a fund at the wrong stage. You’re not a great candidate if you can’t read someone’s website on their services,” adds Fraser.
“Have a mandate. Be honest. Be prepared. Do your homework. Know how much money you’re going to raise and what you’ll be doing with it.”
Wazen says that raising funding also requires a bit more than just research, and that entrepreneurs need to be at the top of their game.
“If you want to raise some serious capital[…] you need to be best in class in your industry and market. There’s not enough capital.”
He adds that being the best in your field will allow you to not go unnoticed with VCs. A big reason for this is that, unlike the US market, the distance between first and second place is larger.
“There’s only one golden rule to success: be so good that they cannot ignore you.”
Another way to look for funding is to network with as many people as possible.
“Build those networks before you need them,” says Fraser.
Even if you’re networking with the ‘wrong people’ getting to know them and making sure they know you can still benefit your company when looking for funding.
“If people know you, they’ll still refer you. It’s not actually about the money,” she adds.
Wazen says that when raising a funding round, entrepreneurs need to already be thinking of the next one and the one after that.
Entrepreneurs need to think about how much they need to raise now and how much they want to give away as well.
“Basically think about how much you want to raise and how much you want to give away so it doesn’t affect you in the long term, such as bringing on an investor with veto rights.”
“Long term thinking when it comes to fundraising is essential.”
“Try and build as much autonomy as you can into your board as early as possible for when there are decisions down the line when you’re not in control.”
Feature image: Howard Lake via Flickr.