Unless you’re a gifted sales salesperson, pitching for funds feels unnatural. But it’s all part of the job description for most founders.
A funding round can take up to 12 months to complete. To get you started on your journey, we're going to summarize the basic knowledge you’ll need for your first round of fundraising, which is often called the seed round.
Startup capital is the money needed to finance a new business.
A startup may need to raise funds numerous times through different “rounds”.
Depending on what stage the startup is at, the funds raised in each round might be used for different purposes.
Money raised at the seed stage can be called startup capital, seed money, seed capital, or working capital. It pays for market research, product development, rent and supplies, new equipment and staff hires.
An early stage startup has proven its idea works and is looking for expansion capital, often called Series A and Series B funding, to scale the business.
At the late stage, the successful startup needs fresh funding to move into new markets either through new products, geographical expansion, or even acquisition.
The first step you’ll need to take is to set a funding target.
The gold standard is to raise enough money to get you to profitability, but in reality, founders tend to raise just enough to get to the next milestone.
The amount you raise requires balancing three things:
Some founders find it useful to base their target on the number of months of operation they’re looking to finance.
Convertible notes, simple agreements for future equity (SAFEs), convertible preferred stock, and common stock are all widely used seed financing tools.
Picking the right one(s) for your business requires that you evaluate how well the characteristics of each instrument align with your preferences.
For the best chance of success, start fundraising when you’re ready.
You’re ready when you can demonstrate your product or idea fills a gap in a growing market. This requires knowledge about your customers and the market, and a firm belief that your product meets their needs.
You’re unlikely to win over investors without a compelling product and some level of customer adoption.
But you should start building your network as soon as possible. The more contacts you have from startup communities and networking events, the more people you can reach out to when you’re ready to pitch.
Remember, a warm introduction from a contact in your network is an ideal way to meet investors. Failing this, the next best thing is to participate in a demo day.
Develop your pitch
A good place to get started is to learn about your audience so you can create a pitch that connects with them.
A pitch built around a story is more likely to resonate, so figure out how you can turn facts, figures, and events into a compelling narrative.
Below are some ideas of what to include:
Remember, even if you deliver a perfect pitch it’s highly unlikely that an investor will say yes immediately.
Another tip is to bring financial documents as evidence to support any business claims you make.
While it’s important to be confident, you’re less likely to connect with your audience if you come across as being arrogant.
Finally, how you deliver your pitch is crucial. Figure out a presentation style that suits you, then practice!
To find the right investors, you’ll need to consider the size of investments or returns they’re looking for, how “hands on” they’ll be and whether they’ll invest in seed or early stage businesses.
The deal isn’t complete until binding agreements are signed and money is in the bank.
Any investor doubts should be addressed quickly and timelines to finalizing arrangements should be clearly defined.
Founders must provide due diligence materials when requested. Documents like financial accounts and your cap table should be accurate and up-to-date.
A disorganized cap table could make it difficult for investors to evaluate their investment and raise a serious red flag.
Using a specially designed cap management tool such as Adnales will give you an advantage when fundraising. With Adnales, your cap table is always valid, so you can minimize effort in reconciliations and revisions. You can reliably and easily model out the impact of the proposed funding round.
To prepare for a primary raise, start defining what you’re looking for. Who is your ideal investor? How much would you like to raise? What amount of equity are you prepared to give away?
Grow your network even before you're ready to pitch. Keep accurate financial accounts and stay organized with your cap table.
To find out how Adnales can improve you cap table management and fast track your fundraising, request a demo today!