This has been accompanied by heightened scrutiny of underlying business models and the funding requirement of the growth plans companies are asking investors to fund.
Despite this nervousness, a number of investors remain eager to back promising opportunities. However, this market sentiment and a lower volume of investment has pushed the bar even higher for raising capital. To counteract this, we believe founders should focus on ensuring ‘investor fit’ when approaching potential. Consider asking yourself these three key questions:
What does the investor focus on?
It’s important to do your research and create a shortlist of those that best align. If it’s not immediately apparent, take a look at the fund’s portfolio companies and recent investments. If they have previously invested in businesses within your sector or with a similar business model, there’s a good chance they will be interested in learning more.
Certain funds prioritise the people behind the business rather than just the business itself. These funds place significant emphasis on the entrepreneurs, founders, and the management team driving the venture, rather than solely evaluating the merits of the business idea or concept. They believe that the success of a business is heavily influenced by the capabilities, skills, and experience of the individuals running it. A strong management team can adapt to challenges, evolve when necessary, and drive the business forward in the face of uncertainties.
What value does the investor bring to the table?
Early-stage investment should not be purely transactional. An investment fund should offer a combination of practical advice and support to help scale the business. Again, it can help to look at the portfolio and, if you can, speak to one of the businesses the fund has invested in to understand their experience of working with that investor.
Another crucial aspect is the fund’s willingness to participate in future funding rounds. Collaborating with an investor who is likely to reinvest in subsequent fundraising activities can significantly save time and effort for future funding by leading your next round. This can also increase your chances of securing further investment from other investors.
Am I getting a fair deal?
In the search for that all-important capital, it is essential not to relinquish too much of the equity in your business. You must be happy with the valuation of your business and the percentage of ownership you are selling. A good investor will recognise this too. Investors know that a motivated founder is vital for a start-up’s success and a fair equity stake is a key factor.
VC funding is available for businesses that introduce something unique to the market or solve existing problems. Taking the time to find the right investor tailored to your business will prove beneficial in both the short and long run. It will streamline the fundraising process and ensure you have the right partner as you scale.