Venture Capitalists invest nearly $20 billion each year into companies registered in the US. Of this, close to seven percent of the deals are with “seed stage” companies. In absolute terms, this amounts to nearly 260 seed-stage companies getting funded each year from VCs. This is not a big number considering that there are nearly 2.6 million venture backed startups in just the United States. Worldwide, nearly 137,000 new businesses are born each day!
How do startup entrepreneurs raise their first round of funding amid this intense competition? In this article, we will take a look at some tips that will help startups raise their first round of funding with minimal hassle.
Even before you start approaching investors for money, it is important to establish trustworthiness with your existing customers as well as employees. It is important to demonstrate to your customers and employees that you are here for the long-term and are not shutting down any time soon.
You can do this, for instance, by drafting professional contracts and product documents for your customers. This helps exhibit your professionalism and lets customers and employees trust you. Trustworthiness helps build the foundation that your business will desperately need before investors start to study your business.
Any investor would be interested in the assets that your company holds. This could include digital assets like the number of customers you have acquired, the software you have developed as well as the patents you hold.
Any business that does not hold a significant amount of assets is more vulnerable to failure and is hence not attractive to a potential investor. To put this another way, if you are a startup entrepreneur who is just starting out, it is a good idea to build a few assets before approaching investors. If you fail to do this, you may be required to give away a higher portion of your equity to investors in exchange for their cash.
Unlike large businesses that take business data confidentiality seriously, startups routinely share details about their business (like traffic growth, customer acquisition, revenues, etc.) publicly.
In a way, this helps these startups build a connection with their early customers who are enthused by being part of a growth story. Sharing such details in public could however be a problem when it comes to raising funds.
By being public, startups open themselves up to larger scrutiny. Also, investors like to keep growth trends of their portfolio companies confidential. By being public, entrepreneurs may potentially turn away investors even without realizing it. It is a good idea to maintain confidentiality and make use of VDRs to share information with potential investors.
Not only does this ensure secrecy, it also ties in with our first point about being more professional and building trust.
Work For Inbound Investors
Over the past several years, outbound marketing has been slowly losing its sheen to inbound marketing.
Instead of advertising and broadcasting your marketing message to an unwilling target group, inbound marketing looks at creating valuable and engaging content that your target audience will then “discover” by themselves. The objective is to then drive these visitors towards your sales pages.
Finding an investor is no different – reaching out to investors who are already neck-deep in product pitches from other entrepreneurs is a futile strategy. Instead, market your website through channels that your potential investor may follow – this could include Facebook groups, media blogs and networking events.
By letting your business be “discovered” by your investor, you are likely to create more interest and are thus likely to elicit more interest from potential investors.
James Hawkins is a full-time user interface designer and owner of Pipeline. Pipeline provides freelancers and agencies with handpicked, high quality project leads every week.