By Law Squared
So you think your startup is ready to go ahead with raising capital. Congratulations! The decision to raise capital is an important one. However, it involves navigating through the entrepreneurial ecosystem, and as a founder it can be difficult to determine which steps are right for you and your startup. These tips will give you guidance on how to think about fundraising, so you can make a better decision on whether you and your startup should embark on the fundraising journey.
Tip #1: Fine-tune your business plan.
A well-laid out business plan can provide clarity in the decision to raise funds. You can use it pinpoint the stage in your startup’s journey where you may need extra capital. Having a well mapped-out business plan can also show future investors how serious you are with your startup and how much thought you have put into fundraising before approaching them.
Tip #2: Get your finances in order.
Depending on how much money you want to raise and/or your startup’s size, investors might ask for a company valuation. In a nutshell, a valuation determines a company’s worth. The valuation method can range from an arbitrary process to sophisticated calculations that require the expertise of finance professionals, and there are pros and cons in each method.
Additionally, the more organised your finances are, the easier it will be to undertake a due diligence and valuation process. Investors will also see well organised financial accounts in a positive light, as it highlights your skill, seriousness and credibility as a founder.
Tip #3: Match the investment with your operations.
If your business plan and finances are thorough and organised, you can start to think about when to raise funds, how much, and who to approach. Do your research to find like-minded investors who are more likely to work well with you and your team and understand your startup’s vision. Avoid the risk of wasting time and resources by working with the wrong investor or raising too much or an insufficient amount of capital.
While these risks can seem quite daunting, a level-headed fundraising approach based on your startup’s needs can help to prevent any fundraising worst-case scenarios. Ask yourself: ‘How will my startup’s activities align with the amount of capital I want to raise?’ A good way to answer this question is to map out what operations might occur in your startup next year, in 3 years and 5 years. Some fine-tuning of your startup’s strategy might be needed before moving ahead and raising capital. Some startups may even decide that fundraising isn’t necessary if they can increase their customer base instead.
By being organised and applying strategic thinking when the time comes to decide if your startup is ready to fundraise, you will be well-positioned to enter your investment round. Ultimately, a well-considered assessment of your startup’s investment readiness can significantly benefit your startup’s operations, no matter how you raise your funds.
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