Raising money is a must for any new company looking to spread its wings and it’s one of the bigger challenges a startup will face. You need to prepare the right documentation, meet investor after investor, and that’s if you’re lucky enough to even get a meeting. Fundraising can take up to six months and go on even longer. By that time, many entrepreneurs just want to get it over with.
But even if the process is arduous, for those who’ve jumped at the first sign of interest and Euros, it was something they soon regretted. Once an investor jumps on board, it becomes a relationship. They might be aligned with your interests or they might not. This is something you need to figure out before you accept any money. If you don’t, you might find yourself spending your days babysitting your new investor instead of building and expanding your business.
Earlier this year, one of Impact Hub Vienna’s program members. WisR, successfully raised a seed round of 250,000 euros in just two months! Carina Roth, Co-Founder and CFO gave a talk on all the ins and outs of what they did to get the terms they wanted and the amount they needed in the time they wanted to spend doing it. Here are 8 key takeaways on how you could do the same.
Talk to your peers!
Find the companies who’ve successfully raised funds and chat with them over coffee, lunch, or whatever. If possible, find companies who are similar to yours to find out how they did it and what they would do differently. They’ve already gone through the process and have learned tons while doing so. Many are happy to share what they know.
Prepare, prepare, and then prepare some more
Everything you do now, you won’t have to do later. Show your potential investors that you know what you’re talking about by having all documentation ready to go. This includes all the standard issue things like slide deck, executive summary, cash flow projections, profit and loss statements, and depending on what stage your company is in, the assumptions you made to get to those numbers. This even includes contacting your lawyer and preparing the term sheet. This isn’t to say that the terms are already set in stone, but by preparing well in advance, it forces you to think about these things so when you’re the face-to-face with an investor, you’re prepared for all questions and know what you’re talking about.
Contact everyone at the same time but start collecting names months in advance
Don’t wait for one investor to bow out before you talk to another. Start collecting names as soon as you can and if possible, reach out and contact them even before you’re thinking about raising money just to keep them in the loop about what’s going on. Send an update with every milestone you hit. When the time comes to raise money, they’ll already know who you are and what you’re about. Keep your e-mail short and simple but with all the necessary information. You will be contacting lots of people and you don’t want to spend the next month constantly answering questions.
You shouldn’t have anything to hide so don’t hide anything. Show them who you are, what you do, and what you want to do. If they like it, great! If they don’t, then it’s not a match. Be upfront with your terms and the ticket size of each investment. Tell them what kind of investor you’re looking for. Don’t hide things to accommodate the wrong investor. Be transparent to find the right one.
Think about the next round
Your focus is obviously going to be on raising money right now but when doing so, there are things to consider for the next time. The choices you make now could affect your ability to raise more money later so it’s important to think ahead. For example, set appropriate ticket sizes. Lots of investors with small investments doesn’t look good on the capitalization table so set appropriate ticket sizes. Also, make it a prerequisite to participate in a subsequent round because if you get to the next round and everyone from your previous round bails, that also doesn’t look good. You want long-term investors who believe in your business, not short-term ones who are only looking to make money.
Ask, ask, ask!
Ask your potential investor questions. Is it their first investment? What companies have they invested in before? How would they feel if things didn’t go according to plan? If they have good answers to these questions, go even further and do your due diligence on them. Call and talk to the companies they’ve invested in and ask about their relationship. How many times do they want to meet? How do they behave? Make sure you know what you’re getting into before you commit to an investor.
Set a deadline
If not, investors think they have all the time in the world to make a decision. A deadline allows them to focus their attention and even motivates them to share the information with other potential investors. Everything moves faster when there’s a deadline and it can create a demand which is what you want. You want to be able to choose from a bunch of potential investors, not just one.
Depending on your business, they might not be necessary. It might be obvious, but don’t hand over all your confidential documents during the 1st meeting. Trust your gut. If you meet an investor and don’t trust them, there’s no need for a confidentiality agreement because you shouldn’t be showing them your confidential internal documents anyway.