In this post, we are going to explore some top tips for the healthiest and most effective fundraising strategy, with a special focus on early-stage startups. At The Startup CFO, we are passionate about sharing good startup practices to help budding entrepreneurs on their journey to thrive and succeed. A huge number of options are available to entrepreneurs, depending on the nature of their startup, their planning and their ability to effectively forecast. Let’s get started!
Explore all the options
Before considering venture capital or private equity firms, entrepreneurs would do well to remember that a huge range of alternatives are available, especially for those living in the European Union. Government loans and grants include a variety of EU young entrepreneur funds. Enisa or Neotec in Spain, personal loans that can be applied for in the UK or the SBA (Small Business Administration) microloan in the US. It’s important to remember that some of these initiatives have very specific eligibility conditions. For example, for the Spanish Neotec initiative, which we have explored in another blog, only startups which provide unique technological innovation and purpose are considered.
If you opt for one of these public fund sources, you might enjoy the benefit of friendly loan repayment terms, but it’s important to remember that the administrative and bureaucratic processes will be intensive, and you’ll need to demonstrate the feasibility of your business in order to stand a chance of competing in an often-tough selection process.
Other funding sources include bank loans for startups. These can include smaller, specialised financial institutions that target small business owners or more mainstream banks. We must keep in mind that access to bank loans might be out of reach for most early-stage startups given the underwriting process applied by most banks is often better suited for later-stage ventures
On the other hand, high-growth startups might be more suited to venture capital funds. It goes without saying that this alternative is much more risk tolerant than other forms of startup funding but will still require a super solid demonstration of the startup’s potential for success, conveyed through an in-depth financial analysis typically carried out by the company’s CFO.
It’s also worth remembering that private investors take a highly active role in the businesses they fund and will do whatever they can to help them succeed considering their stake.
Additionally, private investors are well-versed in the world of startups and often know what they are looking for. Therefore, the key also lies in approaching people who understand and appreciate your USP and the direction you aim to move in with your business.
A sound business plan: essential for potential investors
Whichever type of fundraising you hope to apply for, you’ll need to be able to present a high-quality business plan to the government, bank or to private investors. It’s essential that you put together and present a spotless business plan that brings together your USP, pitch, product market fit and metrics, particularly the all-important unit economics.
Investors need to see a well thought-out, in-depth business plan that forecasts and sets out a crystal-clear financial summary that clearly justifies the amount being requested and how it will be spent.
It’s essential that entrepreneurs understand the criteria of their investor and tailor their pitch and business plan to present a thorough and attractive pitch. Remember that in the case of many startups, particularly in the SaaS and tech industries, forecasts for unit economics will be essential. It’s particularly important for investors to receive a key guide to how much the startup expects to make per user and per subscription and how this will impact on expected revenue and plans to grow the business. These forecasts allow investors to predict potential hurdles and consider how strategies could be optimised.
Be mindful of how much you ask for
Striking a balance can often be a difficult task, and more so for new entrepreneurs. At this stage of launching a startup, it is essential to keep a cool head and use your business plan and financial strategy to determine how much you need to raise and the type of fundraising most suited to your business and your forecasts. Expert financial advice is important to ensure you avoid typical pitfalls like raising too much capital or accumulating excessive debt.
If you are approaching private investors, it’s important to remember that your pitch deck must be organised and well-polished and that investors will simply not fall for “smoke and mirrors” style pitches. Milestone based thinking and planning is often what is most credible to investors. Demonstrating the ability to map out and plan how much you’ll need, when you’ll need it, and why, is much more likely to garner support from potential investors and get you the amount of money you’re looking for.
It’s important to remain grounded and understand how much your idea is worth and how to approach your initial stages of investment. However, there’s no need to undersell yourself either and investors expect to see entrepreneurs with passion for their business and future growth potential.
Expert guidance and intelligent management is key
The process of seeking investment and early fundraising can certainly prove intimidating and time-consuming for entrepreneurs who are often already occupied with day-to-day tasks necessary to develop their businesses. However, a fail-safe business plan and excellent initial reporting make all the difference between success and potential rejection.
The Startup CFO specialises in expert external CFO services tailored to a diverse range of startups. Our services include support in the creation of detailed business plans and forecasting aimed at propelling startups to the next stage in their journey, including seeking investment. Get in touch to find out more.