Fundraising in a normal environment is not an easy task. Couple that with a pandemic and it can feel like an insurmountable endeavor for a startup. There is not a single model that fits everyone when it comes to fundraising, so startups should take a few things into consideration when raising a round.
I see a number of founders make the critical error of rushing to raise money before they are ready. While I am passionate about “disruptive” solutions and try to foster that mentality in my own tech company, Moxehub, I think the word can be overused. I believe there is a fundamental question that should be answered: “Have you really created a solution for a problem that exists or are you trying to frame the problem around your solution?” If you are genuinely creating a solution to a problem or a pain point in the market, the solution then becomes innovative and groundbreaking.
As an investor I look for dynamic founders who have solved a problem. I love solutions that use existing or emerging technologies novel in ways to have a positive impact in people’s lives.
The next question to answer is multifaceted, “Does this problem need to be solved, and how will we solve it differently than everyone else?” A saturated market with a graveyard of solutions that have tried to gain market share and failed is a sign that you should not be pursuing the same path as others. I think as people are ideating and coming up with creative solutions for 2021, they should look to consumer behaviors, and not just now — how those behaviors have changed and will continue to change over time. Creating a solution for the present moment may not work in a year or two or five. As we have seen with COVID, the entire world can change in an instant.
After the fundamental questions have been answered, founders should look at the current stage of their company, i.e. conceptual, proof of concept, early revenue, and then look for investors who invest in those areas. There is nothing more frustrating than to waste time trying to connect to an investor, send information, set up meetings, etc. only to find out that the company is “too early” for them to invest. If the information is not readily available, the first question a founder should ask even before the pitch is, “What are your investment criteria?” This will save precious time and most certainly a great deal of aggravation.
How you share your story matters, too. The best presentation that I have ever had, in the first few minutes of a meeting the founder told me everything I needed to know! It was the most impressive pitch I had ever seen. I was hooked! It was succinct and to the point, he told me what his product was, how it filled a need, its place in the market, and why I should care. If you can grab someone’s attention in the first five minutes and have them understand exactly what you do, your chances of success increase dramatically.
Lastly, I would highly recommend having a realistic financial model prepared by an expert. While these projections can sometimes feel like pulling a proverbial rabbit from a hat, they still need to be based on some precedent and market research. I see a number of startups tweaking their models to “work,” when in reality, the numbers don’t. If the numbers are not working, that is a red flag founders should not ignore. This means it will be almost impossible to raise money. The market must support the numbers and be able to demonstrate a favorable return for an investor.
It’s a great idea for startups to try to find local angels or investors in their area as this will likely allow them to gain more traction in their home markets. Many investor groups are solely focused on their local markets making the pool of competition for money smaller, giving the startup a slight advantage. A few quick internet searches and founders can find lists of angel groups and investors. It is worth noting that founders should also do their own research into investors and depending on their stage should look for “smart money,” meaning an investor that can not only give them an infusion of cash, but also have connections and/or expertise in the industry in which they plan to take their solution to market.
Knowledge is power!
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