Fundraising: Love it or hate it, unless you are independently wealthy, it’s key to the success of your new startup. When done right, it can lead to lucrative partnerships with angel investors and venture capitalists. Luckily, in my experience, the process of fundraising is always similar. The following steps were most crucial in raising each of my initial angel rounds.
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Approach Fundraising in Phases
Say you have an innovative idea for a mobile app, and you need financing to develop and launch it. Fundraising is not a one-time-only event — it consists of several phases that coincide with developmental phases of the business plan. The best strategy is meeting with investors right before or after reaching major milestones. In the mobile app scenario, your developmental/fundraising stages might look like this:
- Phase I: You will probably first seek out “seed money” to fund the initial development and product design. A portion of this investment should also go toward marketing efforts to start creating a buzz about the product. You want to entice potential investors for the later stages of your business.
- Phase II: After the app launches, it’s time to inspire an additional group of investors to start or continue to fund the company. Expenses at this phase can include operations, branding, growth, optimization, marketing, brick and mortar headquarters, staffing, traveling to meet investors and promote the product, and hiring social media/community managers to spread the word and attract users.
- Phase III: This comes once you have reached a major milestone, like attracting 100,000 users, so you have measurable, quantifiable evidence that there’s a need and desire for your app in the marketplace. Use your milestone as leverage for valuation from future investors. By gaining more funding at this juncture, you can continue balancing business development duties with user acquisition. Social media should still play a prominent role in gaining more users. Have community directors initiate intelligent conversations with brand advocates and key influencers like mobile, app, and tech bloggers.
- Phase IV: Funding at this stage will allow you to pay for ongoing operations and expenses, marketing, growth, improvements, continued innovation, release of new products and continued development. It can also help foster partnerships for distribution and can eventually lead to an IPO or potential sale of the company.
Be Pitch Perfect
Whenever you are pitching to investors, keep it short and informative and allow your true passion to shine through. Be careful not to spew out too many numbers and facts — just tell a story. Don’t forget to include these elements:
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- What the company does
- What problem the product/service solves
- What technology is involved
- What the market opportunity is
- Why customers will love the product/service
Embrace the Power of Networking
As an entrepreneur — but more importantly as a human being — I firmly believe in the importance of people building stronger, deeper and more passionate connections, in business and in life. Networking can be critical to business development as well as our own personal growth.
When we network, we’re meeting people in the immediate vicinity. But we’re also making potential connections with their networks as well. Investors often want to invest in and with people they know. When someone who has already invested in your company introduces you to other investors they know and respect, it means a lot. Attorneys, corporate professionals, entrepreneurs and brokers can all be great sources for leads on potential investors too.
In the end, fundraising boils down to one thing: You have to tell a story that investors really want to hear. If you can make them believe what you believe, then chances are your story will live on another day. (At least, until the money runs out!)
Andrew Vest is a Chief Problem Solver, entrepreneur, @YEC member and father. He helps simplify the complicated when it comes to Cloud as Director of Business Development @Redapt.
The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world's most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.