Written by Tianqi (George) Sun
Fundraising is one of the most important skills an entrepreneur needs to have, but few people know how to do it. Sometimes, entrepreneurs are hesitant to reach out because they are not confident with their ideas and their company.
To successfully fundraise as an entrepreneur there are the necessary tools and steps that need to be known and taken. First, entrepreneurs should reach out to investors. Nothing starts until you reach out. Use platforms such as LinkedIn, Y Combinator, Kickstarter to get your business funding process started (About Y Combinator). Y Combinator and Kickstarter are crowdfunding platforms that are best-suited for start-ups that haven’t had too much sales. LinkedIn, on the other hand, is more suitable if you have a complete business with a good revenue stream and want to continue expanding the business. Specifically on LinkedIn, try to connect with those investment founders/investment bankers to see if they are interested. Also, entrepreneurs should not forget about offline networking, for instance, attending events, conferences, meetups around the globe to meet investors worldwide, and connect with them when possible.
Next, entrepreneurs need to establish a strong presentation that is around 10-12 slides with a minimalistic but fashionable style. When there are a lot of words on a single slide with too much information, the venture capital investors will be unwilling to take in that information because it is too crowded out, thus losing interest in your company. Most of the explanation needs to be done by pure memorization, for instance, remembering the statistics about your company such as the revenue, retail prices, price margins, etc. Entrepreneurs need to know their company in their heart. If there is a hiccup in Q&A, the investor might stop being interested. Fundraising is more than just some investors handing you the money and growing the company, it is more about building a story and portraying this vision to the investors. Entrepreneurs need to not only describe their current situation of the company, but also paint a picture of the future while integrating the key values and company culture to the investors. Because investors are looking for potential, growth, and more importantly, the entrepreneurs behind the scene. Thus, the presentation is not only about the great statistics, but also a complete narrative to success.
Fundraising is not always flashy like the show Shark Tank. An entrepreneur’s resilience will come into play during the fundraising process (Schreifels). Rejection is quite inevitable, because different investors perceive the company in different ways. Also the risk-taking strategy from different investors are significantly different. However, the rejection experience is extremely valuable for an entrepreneur’s growth because the valuable feedback acts as a learning opportunity to improve on the pitching and fundraising skill (Schreifels). Again, persistence is the key to success.
In the meantime, entrepreneurs need to evaluate the partnership. What does this investor bring that’s different from the others? What resources does this investor have that will make my business unique? Those are the questions that need to be answered before signing the contract. It is not just the investors evaluating the company, the entrepreneurs evaluate the investors as well (HBR). Finding those who believe in the same vision and embark on the journey is a necessary relationship that needs to be built with investors. During tough times after signing the contract, this partnership should be able to navigate the challenges and solve those challenges.
Lastly, entrepreneurs need to close out the investment deal. A lawyer is needed to go over every single term in the agreement such as: equity, voting rights, liquidation preferences, and any other conditions tied to the funding. Then both sides need to conduct due diligence to make sure the statistics are correct and make this deal as transparent as possible (HBR). Oftentimes, investors expect growth and entrepreneurs need to be clear about these expectations and confident in your ability to meet them. Failure to hit agreed-upon milestones can lead to complications with the investors. Also, develop a clear communication channel and plan with investors to make sure there will be no complications, and exit strategies need to be discussed to protect the investors.
In conclusion, fundraising is not merely a means to an end but a crucial phase in the lifecycle of a startup. It requires preparation, resilience, and the ability to tell a compelling story. By understanding the platforms available, refining the pitch, and building strong relationships with investors, fundraising can transform from a daunting challenge into an exciting opportunity to propel your business forward. Every successful company once was a startup- on the precipice of reaching out for funding to turn their dreams into reality. The journey of a thousand miles begins with a single step, and in the world of entrepreneurship, that step is fundraising.
References
About y combinator. Y Combinator. (n.d.). https://www.ycombinator.com/about
Everything you (don’t) want to know about raising capital. Harvard Business Review. (2014, August 1). https://hbr.org/1989/11/everything-you-dont-want-to-know-about-raising-capital.
Schreifels, J. (2024, January 4). Patience and persistence: The heartbeat of successful fundraising in 2024. Veritus Group. https://veritusgroup.com/patience-and-persistence-the-heartbeat-of-successful-fundraising-in-2024/