What should I do to get funding for my startup?

Funding for my startup
Funding for my startup

As we already told you a few months ago, a fundraising round is the process through which a startup gets capital to develop its activity thanks to the participation of investors. If you are looking for funding for your startup, consider that you must meet some requirements to attract investors (business angels, venture capital funds or others) to your project.

From The Startup CFO we have decided to write this article with the aim of letting you know what conditions your project must meet to be successful in a fundraising round.

We can divide these conditions into two groups, depending on whether they refer to the strategic or the economic point of view.

What conditions must your startup meet at a strategic level?

Solve a real problem

The first point to consider for an investor is that your startup, with its offer of products or services, will solve a real and urgent problem that makes sense in the current context.

If there are no other players in your market, or your startup solves these problems in an innovative way, investors will value it very positively. Nevertheless, it may also be a bad sign that if there is nothing similar at all to your product so far.

Play in a large market

The problem you solve must be concrete and there must be a large enough market that has an interest in what you are selling.

Investors usually look for projects with a lot of growth potential in order to achieve the profitability they expect, so if your market is too small, the investor will not be interested in investing their money.

Have the right team

You need to have a team of entrepreneurs with the necessary experience and commitment to carry out your project.

If your team lacks experience in your market or does not dedicate enough time to your project, the investor will not take you into account.

Have a minimum viable product (MVP)

You need to have developed at least a prototype of what you sell to prove that you already achieved an MVP, taking into account that it must solve a real and urgent problem.

As simple as your solution may be in the early stages, it is important to demonstrate that there would be customers willing to pay for what you offer.

Follow a realistic but ambitious business plan

An investor will take into account what your business plan is in the long term, which should include a good balance between realism and ambition. If your plan is unrealistic because it is too ambitious, it will be difficult for the investor to believe you and therefore, they will not want to finance your startup.

What conditions must my startup meet economically?

Foresee solid units economics

Units economics are the revenues and costs associated with your business model, expressed in relation to a single customer.

Investors need to know how much money your startup can make for each euro invested in fundraising, which depends on your key metrics.

Customer Acquisition Cost (CAC) tells us how much money it costs you, on average, to attract a new customer during a given period of time.

Customer LifeTime Value (LTV) tells us the gross margin you get from each customer during their life cycle in our company.

The estimation of these two metrics allows the investor to assess the profitability of a single customer over time and, with this, to observe what the evolution of your business may look like in the long term. If acquiring a client is profitable in the long run, the investor will want to invest a lot of money in acquisition.

Show high retention (low churn rate)

It will always be easier for you to get a new customer to buy again than to attract a new one. If you are already selling the product or service, an investor will want to know the churn rate of your startup in order to know the loyalty of your customers.

Although a client may stop counting on your startup because it has already met their expectations, they must always want to count on you again when they need you. That is why if your offering of products or services is wide, your chances of success also increase.

Something that you should also keep in mind is that the best way to make new clients is to do a good job. Customers will recommend you to other people in their environment who have the same problem. For that reason, the level of service must always be a top priority even from the early stages.

Other tips to keep in mind

Other tips that can help you when presenting your pitch to a potential investor are the following:

  • Make him/her see the reasons why s/he should invest in your business, that is, learn to sell in an attractive way what your startup does and what the market and your customers contribute.
  • Sell yourself to the investor, explaining who you are and what your achievements have been up to that point.
  • Avoid falling into exaggerated or superficial promises when defending your message, remember that investors are also people and they want to see the value of your project.
  • Make your message unique with a different speech. Keep in mind that investors are used to seeing many projects and phrases such as “we are a company eager to grow” are not bringing them anything new.

Do you need help preparing your next round of financing?

We have just exposed some of the most important aspects that you must take into account when preparing an investment round. As you already know, facing a fundraising round is a crucial moment for your startup. In many cases success or failure can depend on getting the contribution of a professional investor at the right time.

That’s why we will always recommend you to contact experienced professionals, who know the sector and how to face one of these rounds with the highest guarantee of success.

If you need some help when preparing a fundraising round, we invite you to contact us at info@tscfo.com.

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