First Time Fundraising for Startups
Key areas of focus when pitching investors
For most startups, the founders start out by bootstrapping- funding the venture with personal funds and asking for capital from family and friends. After these initial sources of capital, there comes a time in a startup’s journey when founders must look for outside investment. Pursuing external capital differs from bootstrapping, and there are some key areas founders should focus on to ensure they position themselves to successfully pitch investors. Founders need to maximize their passion for their startup and have a clear idea of what capital they need and why they need it, i.e., how they will utilize it and what it will help them achieve.
One of the first items founders should address in their pitch is what problem their startup solves and how they do so in a manner differentiated or superior to the competition. This must be clearly covered to investors because if they cannot understand the need and how the startup is addressing it, they will likely not be willing to invest, even if they are drawn to the founders’ personality and passion. Having a clear business model and conveying what makes a startup unique is necessary to grab potential investors’ attention and sets the tone for the remainder of the pitch.
Once founders address the problem they are solving, and how, it is important for them to convey their passion for the business throughout the pitch. Attitude is crucial because as much as potential investors are evaluating the idea, they are also evaluating the team. Investors are trying to determine if the idea is viable and if the founders can successfully execute it. For this reason, founders need to ensure they are displaying both their passion and credentials, instilling a belief that they have the vision and drive to lead the startup into its next phase of maturity.
The third aspect revolves around specific funding ask. Aside from valuation and amount of funding, founders need to have a clear plan to use the funds. If founders are unsure of how much capital is needed or how they will use the funds, potential investors tend to quickly lose confidence in their ability to execute their plans. To prepare for this, founders should be well versed in their financials, valuation terms, and be prepared to speak to them in detail.
Raising capital is something all startups must consider as they grow. In addition to financial sustainability, it is a great way to validate your company by the market. It is critical for founders to be prepared to concisely showcase the value proposition, convey their passion, and clearly state their asks to investors. Being prepared in these three areas can give founders an edge in fundraising as they become more experienced in pitching to investors.
A final note on raising venture capital: this is often the most expensive source of funds from an equity perspective. Founders should also strongly consider what potential value their VC adds beyond just capital; this can include mentorship, networking opportunities, access to customers, partners, and sometimes even future investors.
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