Before reaching out to investors, take time to clearly define your fundraising goals. Key questions to answer include:
Having a clear fundraising plan will help you identify investors that can meet your needs and communicate effectively with them.
Once you know how much you want to raise and what you will use it for, you can start identifying potential investor types including:
Tapping into your personal network is often the easiest way to get initial seed funding with few strings attached. While friends and family typically invest smaller amounts, it shows other investors you have some backing.
After bootstrapping and tapping friends and family, angel investors are often the next place entrepreneurs go for funding. These high net worth individuals provide financing to startups, usually in exchange for equity. They often have industry experience and can also provide advice.
Venture capital (VC) firms invest in high-growth-potential companies in exchange for equity. They usually invest more in later rounds vs seed stage. VCs have high return requirements given the risk.
Crowdfunding sites like Kickstarter and Indiegogo let you raise small amounts from a large number of contributors. Instead of equity, you typically give rewards or pre-order products.
There are also industry-specific platforms like SeedInvest for tech startups.
Once you have identified potential investors, the next step is evaluating whether they are a good fit for your business.
Consider what stage your company is at and what milestones investors would expect you to reach with their funding.
Match the investor to where you are now.
Figure out the typical and maximum check size an investor does. For example, an angel may invest $25K-100K while a VC fund may do $500K-$5M.
Make sure their range lines up with your fundraising goal. Having multiple investors to meet your needs can be difficult to manage.
See if the investor has experience funding startups in your particular industry. That specialized experience can be invaluable.
For example, they can provide relevant connections and advice in your specific vertical.
Pay attention to whether your leadership team meshes personality and values-wise with an investor. This investor-founder relationship can last over a decade in the case of VC-backed startups.
During meetings, get a feel for communication styles and problem-solving approaches. Make sure there is openness and transparency between you.
In addition to fit, take time to evaluate an investor’s past performance backing other startups. Relevant questions to ask:
Once you have identified well-matched investors to target, it’s time to pitch. Use these tips to create an effective pitch deck and nail your presentation:
Summarize key details upfront on market opportunity, your solution, business model, traction, team, and fundraising status.
Analyze the competitive landscape. Show what sets your company apart from others targeting this industry problem and why you can win long-term.
Share concrete metrics on progress to date – revenue, user growth, product adoption, etc based on stage. Show evidence your business model is working.
A startup’s team capability is critical for investors. Emphasize unique strengths and experience as well as passion for your solution.
Provide realistic forecasts on customer acquisition costs, revenues, gross margins, profitability timeline etc. Explain key assumptions.
Be clear on how much you want to raise now, use of funds, and objectives with this financing to set expectations.
Don’t just present slides without context. Have a dialogue to establish rapport and get real-time investor feedback.
Send a summary of critical points discussed and express your continued interest in partnering. Share any requested info.
Persistence pays off – it often takes connecting with many investors before securing financing. Track your outreach efforts in a CRM and continuously refine your messaging based on investor feedback.
The final step once you have an interested investor is structuring the deal itself. Key components include:
Confirm the total funding the investor will provide and under what conditions (milestones achieved, etc).
Negotiate what percentage of equity the investor receives. Typical ranges are 10-25% for angel rounds and 20-40%+ for VCs.
The post-money valuation is the company worth including investor money. Make sure valuation is in line with stage, traction, and market.
Standard rights include pro rata, information access, and blocking rights on certain decisions. Get legal counsel to review proposed terms.
Discuss what level of control and Board seats the investor receives, if any. Common arrangements depend on round size.
Don’t hesitate to negotiate favorable terms for your business. With preparation and persistence, you can find the right investors to partner with on your entrepreneurial journey.
I hope this comprehensive guide gives you a game plan for identifying investor prospects that align with your startup, evaluating fit and track record, crafting a compelling pitch, and negotiating favorable deal terms. Let me know if you have any other questions!
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