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Essential to successful fundraising is understanding what investors want. Judy Robinett provides a roadmap in her soon-to-be-released book Crack The Funding Code: How Investors Think and What They Need to Hear to Fund Your Startup. Equity investors fund about 1% to 4% of the deals they see. “You must package your business to make it easy for funders to say yes,” writes Robinett.
The process isn’t just about convincing the investor you have the right stuff. It about improving the likelihood that your startup will succeed by:
- Thinking strategically about every aspect of your business — from your business idea to your team, and from processes and execution to your exit strategy — to ensure the fundamentals are sound.
- Getting feedback and expertise from industry and financial professionals with the knowledge and connections you may lack.
While following Robinett’s advice does not assure success, one tip is close: Participating in accelerator programs for startups, such as DreamIt Venture, 500 Startups and Springboard Enterprises increases the chances a startup will survive, from 20% to as much as 80% or more. These programs provide comprehensive support intended to accelerate the learning curve. This includes training, peer support and mentorship, access to investors and experts and, because of the successes of some of these programs, a Good Housekeeping Seal of Approval.
Whether you go through an accelerator program or not, you need to cultivate relationships with investors on your own. Most early-stage investors won’t even look at your plan or take a meeting without a referral from someone they trust.
Robinett provides practical strategies for getting that referral from providing database sources to networking tips. Importantly, seek the right investor by targeting those with a focus on your industry, location, and stage of development. Know that investors fund passionate founders who are competent, committed, credible, convincing, confident as well as those that they have chemistry with and are coachable.
To be a success, you have to have the right tools. Several categories of tools are essential: financial, business and marketing.
Financial tools: Historical financials and realistic future projections are vital to getting investor buy-in. These help you decide how much money you need, what you’ll use it for and during what period you’ll spend it. Investors will also want to know the business metrics that drive the success of your business. They will also want to know the company’s burn rate. The burn rate is the rate at which a startup exhausts its financing before generating positive cash flow from operations.
Business tools: Startups will need an executive summary. This is the one-to-three page document that you share with potential investors to excite interest. You’ll use an investor slide deck when presenting to and following up with investors.
Marketing tools: Make sure you have a polished elevator pitch. The point of an elevator pitch is to get your prospects interested enough in your company so that they give you their card or refer you to someone else who might be able to help. You don’t need to reel them in with the elevator pitch; you just need to get them on the hook. Have a pitch you can use for email introduction, casual conversations, and formal meetings.
You also have to be prepared to answer investor questions. This is particularly tricky for female founders. Investors — whether male or female — ask male founders questions related to promotion or gain, and female founders questions related to prevention or loss, according to Dana Kanze’s research among TechCrunch Disrupt competitors.
The different focus resulted in men raising five times as much as women. The key is to flip the focus of your response. Yes, you have to answer the prevention question with a prevention response, but if you add a promotion response, you will go on to raise 14 times more funding than those who don’t. So, absolutely know how you are going to mitigate product, market, management (execution) and financial risk but also demonstrate how you’re going to hit a home run.
You now have investors who want in on your deal, now do due diligence on them. Ask yourself:
- Is the investor a good fit for your startup?
- Do they share your vision for the business?
- Will they contribute to the success of your business?
- Will the investors be responsive when you face issues?
How will you prepare for your fundraising journey?
January 30, 2019 at 06:27AM
Forbes – Entrepreneurs