4 tips startups need to keep in mind when raising first round funding

Being a startup founder can be downright challenging. Whether it is developing a sound business plan, building a team, or acquiring customers, you will be dealing with a sheer number of hurdles.

Moreover, if you’re not backed by an elite accelerator, getting your startup off the ground can be an uphill battle. Raising money for your company requires you to think strategically.

Failure to take care of this aspect can lead you in the “valley of death” — a term used in the startup circles representing the failure experienced in acquiring venture capital for a startup. In fact, according to Josh Lerner, Harvard Business School’s venture capital guru, about 90 percent startups fail to acquire capital for their businesses, and eventually shut down.

You don’t want to be one of these cold statistics, which is why it is crucial to understand the right methods of fundraising. Moreover, the first stage of funding tends to be the most time-consuming one. You want to ensure that you get off on the right foot.

Here are a few tips that can help you with first round funding:

Create a Solid Pitch

Ensure that your pitch talks about your vision for your business and the strategies you’ll implement to achieve it.

Here are few aspects you should keep in mind when creating your pitch:

• Emphasize your strengths and make your pitch excellent by making storytelling an essential part of it.
• Include the goals of your company, the problems you plan to solve through your service/product, and the reasons your target audience will find it appealing.
• Keep fine-tuning your pitch as your receive feedback from the investors.

Cultivate Relationships

Fundraising isn’t just about acquiring cash for your startup. Cultivating relationships also plays a critical role, as it can lead to business development success.

Read more: No surprise: funding the biggest hurdle for SA’s startups

When looking for an investor, see to it that he/she also fits in the role of an advisor perfectly. This will ensure that he/she is adding significant value and bolstering your startup.

Here are a few tips that can help you network with potential investors:

• Don’t pursue only CEOs when looking for investors for your startup. Consider going for experienced professionals in operational roles like heads of engineering, sales, or marketing functions as even their knowledge and experience can help you with running a business.
• Seeking advice from startup founders who have gone through the process of fundraising will be extremely beneficial.
• Make sure to get your company listed on AngelList.

Choose the Right Investor for Your Business

Pursuing the right method of fundraising is crucial for your startup. You want to be sure about choosing the best investor for your business.

According to the Center for Venture Research at the University of New Hampshire, total US angel investments ran to US$24.1-billion last year. More than 73 000 ventures received angel funding, and there were 316 000 active investors. Angel investing is witnessing a significant growth, and if you think it’s the right investment method for your business, consider opting for it.

Apart from this, a lot of today’s tech giants have partnered with VCs (venture capitalists) and several are also opting for crowdfunding. One of the major benefits of crowdfunding is that none of the investors become shareholders in the company; so you get to maintain equity while raising capital.

Read more: How the SA government is trying to seed more startups

However, it isn’t the best option for long-term funding. Venture funding, on the other hand, can help you raise relatively more funds, but it has more stringent investment rules as compared to the other means of investment.
Once you are done with the funding process, you need to work on maintaining the financial health of your startup. This requires you to understand the essential aspects of investment in depth. For instance, if you’re planning to sell silver to procure cash, make sure that you’re familiar with the current market prices.

Be Emotionally Prepared

While you may be ready with a brilliant pitch and have a solid team by your side, but are you emotionally ready for the fundraising process?

Each step in this process requires you to have the right state of mind. You may receive a lot of flak for your business idea, regardless of how brilliant you think it to be. You need to be strong enough to handle negative criticism. The tough comments shouldn’t make you lose faith in your idea.

The fundraising process will take severe physical and mental toll. Chances are that it may affect the way you handle your team, which is why you need to ensure that you’re prepared for coping with contingencies beforehand.
Also, remember acquiring funds for your startup is a means and not an end in itself. Don’t let the process consume you.

The first round of fundraising acts like the stepping stone in the financing process for kicking off a startup. You don’t want to take the slightest risk as this stage will decide the future of your startup. Doing things right will help you form lucrative relationships with your investors. Raising funds can change the fortune of your company. So, make sure to invest substantial time in making decisions related to it. Taking the right steps will surely lead to fundraising success.