While startups are used to navigating largely by gut instinct, preparing properly is the key to getting the most out of fundraising
It’s in a startup’s nature to operate fast. Being pragmatic, acting quickly and making decisions without complete information is usually their modus operandi. The thrill and buzz this brings can yield positive results and is also a learning ground for mistakes. However, when it comes to planning around fundraising, raw instinct should be substituted for calm, rational thinking. If you’re at a point in your business where you’re exploring external fundraising as an option, here are some important things to consider before you take action.
Understanding your market
If you’re looking at series A or B fundraising, an investor will want you to prove your product-market fit. In other words, you’ll need to not only show that your idea is a good one but that there’s also a large market for it.
In light of this, it’s a good idea to stay lean and, if possible, not dive in to building anything too complex before fundraising. In the early stages of business, your focus should be centred around learning as much as you can. Don’t forget how crucial it is to gain an understanding of your customers – who they are, what they want and how you can build your product offering around them. Ideally, you should try to have some revenue already before you do a Series A funding round. So if you can stay lean and have a small customer base, this is very useful.
Defining unit economics
Another key thing investors will certainly look to understand is unit economics. This is an analysis of what it costs you to sell your product versus how much you make from it, which will help investors project its future profitability. When you’re trying to fundraise, you ideally need stable unit economics, not just a notable growth rate. It’s one thing to have high growth rate and popularity but, at a certain point, investors will need to understand aspects of cost and profit-per-unit.
Selecting your target
The good news is that there are a lot of investors out there looking for new and promising businesses to work with. Indeed, there are more investors in London now compared to five years ago when MarketInvoice started fundraising. But this also means that it’s all the more important to be selective to find the one that’s right for you. What is it that you’re looking for? Someone with a wealth of expertise in your specific sector? Or maybe someone who can give you new opportunities for growth overseas? Once you’ve found the right individual or individuals, be sure to customise your pitch in a way that is relevant to them.
Take the time and do it right
Access to working capital can make or break a business shifting into growth mode, so it’s natural for startups to want to act quickly on decisions around fundraising. If you spend the time upfront to put a plan in place, you’re one step closer to setting yourself up for future success.