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For many high-tech startups, raising venture capital is one of the first hurdles to overcome on the way from idea to unicorn. Particularly in the technology sector, where artificial intelligence is making it easier to bring products to market every day, obtaining financing is one of the few ways entrepreneurs can still gain a real long-term competitive advantage.
One of the biggest problems company founders face when raising funds is not properly preparing for a raise. Too many founders imagine that fundraising is an isolated task that will be accomplished in 2-3 months if mandatory. The truth is that a successful fundraising is often the results of a careful planning process that puts founders in a good position to seek venture capital.
Here are 4 things corporations can do from day one to put themselves in the absolute best position to raise venture capital when they need an infusion of capital.
1. Reduce legal risk
As a lawyer, many startups have approached me with term sheets in hand, asking me to retrospectively fix their legal documents to avoid problems during due diligence.
Movie social network, what is it about founding Facebook, shows how vital it is for a company to have appropriate founding documents, founding agreements, employment contracts, project of mental property, freelancer agreements, etc.
Although Facebook managed to absorb a $65 million settlement with the Winklevoss twins, most startups don’t survive early legal challenges, which implies legal missteps early in a company’s life can pose enough of a risk to scare off potential investors.
If you’ll be able to’t afford a lawyer at an early stage, using contract templates from sites like Law4Startups or LegalZoom will be an inexpensive way to make sure you are not making legal mistakes.
2. Network
Fundraising is much easier when you already have a network of investors you’ll be able to contact, relatively than building that network as you raise funds. This is something many founders learn the hard way.
The reason for this is twofold. First of all, it is much easier to build relationships with VCs when you are the founder, you are building an interesting product and you do not need anything from them. When your first contact with a VC is not to ask for money, but to share information about your project and educate them about your market, you’ll be able to develop a natural relationship with them. When you first contact a fundraiser, you do not have a probability to build a personal relationship beyond the fundraiser itself.
Second, the fundraising process will be streamlined if you have an established network. Instead of introducing yourself, asking for funds, doing due diligence, etc., you’ll be able to set a date to contact your network, tell them about the raise, put aside a week to talk to all of your investors, and then set a deadline for them to commit. This streamlined raise will probably be more practical and less time-consuming. If you do not have an existing network, you’ll be able to start by attending local startup events, connecting with VCs and founders at X, or signing up to online investment networks like Signal NFX.
3. Track metrics
When you select to raise, investors will want to see the data. Even if you have a limited number of shoppers, they need to see that you simply already have some customers, some signs of product-market fit and a level of shipping speed behind your organization. One of the key issues with metrics is to make sure that you simply don’t just show numbers out of context, but specifically focus on metrics that show the dynamics and growth of your enterprise.
This means you would like to show your revenue growth rate, user acquisition, etc. The simplest way to ensure this is effective is to connect automated tools like Google Analytics, Ordway, and Stripe to your website and payment systems from launch.
4. Create your narrative
One of the commonest mistakes I see is waiting until founders have to pitch before they begin creating a narrative around their company. This often fails to make an impression because founders are tempted to build a narrative around investors, potential, and funds, relatively than their clients. Building a story around your customers requires creating it while working with those customers.
The simplest way to do this is to start crafting your organization narrative based on the advantages expressed by early adopters during your product launch, relatively than what you think the VCs in the boardroom will like. The reality is that a real story where real people use the product you have built will at all times be more compelling and effective than one you create in the hopes of attracting investment.
Paying attention to why customers use your products and continuously repeating your organization’s narrative long before venture capital is needed will allow you to create an honest narrative that can connect with investors.
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Overall, one of the easiest ways to simplify your fundraising process and increase your possibilities of success is to plan for critical fundraising elements comparable to legal issues, network, metrics and track record to be developed well before you would like capital from outside investors. Using existing software and devoting some time to these tasks from the starting will allow you to do this without having to make other sacrifices, while also gaining quite a few additional advantages for your accounting, marketing, culture and more.