Startups generally start their fundraise journey through friends & family. The first external investment is typically called a seed round. A successful seed round not only validates the business model but also lays the foundation for subsequent funding rounds. Therefore, proper planning for raising a seed round becomes critical.
Start Early
When founders notice that everyday a startup is publishing its fundraising story, they may get disheartened since fundraising is, essentially, a time consuming process. It is imperative to start the process 7-8 months prior to when you want to raise funds. Underestimating the time required often leads to desperation and alteration of your business strategy.
Do not Lose Focus on Business
It is very important to build traction while making fundraising efforts. A lot of investors ask founders to come back after six months. This is generally to assess how resourceful a founder is without requisite funds. There are several ways to keep treading on the path even without funds. This may include tie-ups, associations, third party services, paid PoCs etc.
Investor Expectations
While shooting a mail to an investor, a founder must include following points in the mail body or the deck:
a) Team Strength & Experience
b) Traction Till Date
c) Key Competency and Positioning
d) Clarity on Business Model
e) Roadmap for Growth
f) Funding requirement and Deployment Areas
Keep the mail body crisp and to the point. Do not confuse passion with verbose mails.
Have a Big Picture Perspective
Every founder has a belief that her idea is the next big thing. However, it is important to communicate the same to the investor(s) in a convincing manner. Investors are looking to make exponential returns on their investments given that investing in startups is one of the riskiest asset classes. A founder must not only figure out how to find an investor for her startup idea but also how to make it an attractive opportunity for the investors.
Practice your “Pitch”
Converse with other founders who have successfully raised money and take their inputs. Take feedback from investors constructively and make changes to your pitch wherever required. A pitch is an ever evolving proposition. Always practice your pitch before approaching an investor. This would boost confidence and prepare you for unexpected questions.
Make Sure You Know the Right Deal Terms
The structure is critical in order to raise a seed round. It is important to ensure that the deal terms are appropriate and consistent with the trajectory of your business since the seed round will lay a foundation for all future rounds.
Financial terms that you will need to know in order to negotiate with investors:
● Compulsorily Convertible Note: A legally binding note, which is initially in debt form and to be converted into equity on milestone achievement or pre decided timelines.
● SAFE: This means, Simple Agreement for Future Equity. SAFE notes are a contract that states how much equity an investor should receive during subsequent financing rounds.
● Cap: This is the maximum price or amount of equity a convertible note can reach.
● Floor: This is the minimum price or amount of equity a convertible note can reach.
● Pre-Money Valuation: This is the valuation of a company before any investment has been made or financing secured.
● Post-Money valuation: The value of a company after investment.
Raise for at least 12-18 months of runway
Try and raise for 12-18 months runway since businesses are uncertain and initiatives do not always materialize as planned. Raising more allows you a fair shot to meet your milestones for the next round of financing so that you can focus on building the business and moving forward in the right direction. Raising every round is a time consuming and distracting process. Additionally, there is a transaction cost every time you close an additional round.
SlideStorie helps you in building your story or increasing chances of getting an audience with your target investors. We also help you assess your fund requirements in a logical manner by way of a financial model. This helps a founder to feel confident and ready for queries from the investors.
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