If you’re on your fundraising journey, you certainly have a master plan for how you want to reach your goals. But there are many things to consider and steps to take. This article is part of a series of articles in which we're diving into the world of fundraising, from the Wellstreet perspective. Once you've considered your circumstances, crafted a compelling pitch deck with all the information the investors want to see and assembled a data room to substantiate it, it’s finally time to fly. Fundraise time. Come with us and explore our best practices and tips for successfully raising funds from a VC.
FLY TO THE NEXT LEVEL
From identifying and engaging potential investors to building valuable investor interactions, here are some key insights to have in mind to maximise your fundraising efforts and push your venture forward.
- Valuation is Key: Whether you’re at initial meetings or due diligence, valuation is always the focal point of the journey. Ensure you have a clear understanding and strategy regarding the valuation of your company throughout the process.
- Owner Alignment: Ensure alignment among current stakeholders regarding capital-raising efforts. Explore opportunities for existing owners to invest further or leverage their networks to open doors.
- Expand Your Network: Meeting numerous investors is essential. In our experience, we have concluded that you need to meet five times as many investors today as you would have two years ago. Leverage your network, including LinkedIn connections, to secure introductions.
- Demonstrate Energy: Show enthusiasm and drive during investor meetings. Energy and passion can be persuasive indicators of your ability to lead and grow your company. If you don’t love your project, who will?
- Effective Communication: Project manage the fundraising process meticulously. Be clear and consistent in communication with relevant stakeholders at every stage.
- Avoid Over-Dilution: Be mindful of dilution, especially in the early stages. Remember that future funding rounds will further stretch your cap table, so be strategic and avoid excessive dilution upfront.
- Seize Opportunities: Move fast to close deals. Investors may change their minds due to different circumstances; closing early mitigates the risk of losing potential investors.
- Investor Relations: Prioritize investor relations between funding rounds, ensuring stakeholders receive regular updates and are informed and engaged. Effective investor relations facilitate smoother future fundraising endeavours and relations with the executive board.
- Focus on Building Value: Ultimately, prioritise building a robust company. Fundraising can become more manageable when you focus on building a solid foundation and demonstrating growth potential.
Ultimately, the crucial aspects to consider when refining your fundraising practices are to avoid abstract concepts and raise funds solely for short-term needs. Instead, prioritise tangible traction and secure funding for genuine scalability anchored in solid unit economics and a clear path to profitability. Focus on clarifying your revenue generation and achieving breakeven, outlining the concrete activities and market entry strategies you plan to execute to drive sustainable growth.
BE READY TO NAVIGATE A VALUATION PUSHBACK
Your company is your baby; of course, you believe its value is endless. But when raising capital, you will often face a tough negotiation on the valuation. Navigating valuation challenges requires strategic assessment and decisive action. When facing investor pushback on valuation, evaluate the fairness and accuracy of their objections. Here's how to respond effectively:
Accept Fairness: Consider whether the pushback is justified based on your business's performance and market comparables. If your business isn't meeting expectations and market dynamics are unfavourable, you may need to consider lowering the valuation through one of these options:
- Lower your investment ask to align with market realities.
- Accept dilution if additional funding is imperative, especially if you're not anticipating significant future rounds.
Challenge Unfairness: If you believe the pushback is unwarranted or opportunistic, take a stand. These will be your alternatives:
- Provide data supporting your valuation, such as comparables and potential exit strategies, to bolster your negotiation stance.
- Seek alternative investors or funding sources that align better with your valuation expectations.
- Refuse to accept the valuation and postpone fundraising until the conditions improve.
Regardless of the chosen approach, it's crucial to reassess your position if your financial runway is limited. If you carefully weigh the investor concerns and strategise accordingly, you can navigate valuation challenges with confidence and clarity.
THAT’S A LOT… JUST REMEMBER TO STAY THE COURSE
Here are some key takeaways for founders preparing for fundraising:
- Timing Matters: Understand that fundraising is a process that requires ample time and preparation. Start early to avoid unnecessary pressure and maximise opportunities.
- Focus on Execution: Highlight your accomplishments and tangible results to investors. Demonstrating a track record of execution is often more effective than extravagant strategies.
- ESG Integration: Incorporate Environmental, Social, and Governance (ESG) criteria into your business model. Investors increasingly prioritise sustainability and ethical practices, making ESG considerations essential to attracting funding.
- Have an Exit strategy: It may feel strange to consider exits already in the fundraising process, but daring to address potential exit opportunities early on can increase your chance of raising the funds required.
Considering these key points, you can better position your company for a successful fundraising endeavour while aligning with evolving investor expectations and market trends.
