While there’s plenty of ways you can raise money without involving venture capitalists - from your own savings, to friends and family, angel investors, and even crowdfunding or peer-to-peer lending - it’s the investor community that most startups have an eye on.
What’s an investor looking for?
The chances of a startup getting investment are slim to none; so many businesses are clamouring for cash that investors tend to be picky and demanding. You’ll be more likely to succeed if you meet requirements like the following.
Sure, you might think you have a killer idea, but is it truly different - or are you just adding features? It’s up to you to show investors how your idea differentiates from every other startup asking them for money, and why people will want it.
Something with a clear use case
Make sure you’re solving a legitimate problem, not just adding bells and whistles. Really think about your business strategy and plan because your potential investors will go over it in detail. Your startup accountant can help make sure your business plan is solid.
Something at the right stage of growth
Investors will tend towards startups at certain stages; it might be because they have experience in that stage, or because they have a certain risk appetite. The investment stage you are at does determine the type of investor you will attract; make sure the investor in your sights is aligned with your growth stage:
Pre-seed funding - tends to be a quick injection to hit the milestones to ready themselves for true seed funding
Seed funding is designed to fuel a startup’s move beyond its founding team, and funds product development.
Series A -. Investors here are looking for a startup that has a well-researched product with evidence of demand.
Series B - investors are looking for the next stage of growth, which usually means scaling the company - funding recruitment drives and expansion to different markets.
Series C onwards – investment aiming to super-charge expansion - moving internationally, or making acquisitions. Founders may look to their exit at this point, though there is no limit to the rounds of funding they could raise.
Something that will scale appropriately
Don’t forget that investors are looking for something that will make them money several times over. If your startup has a perfectly good idea with a small addressable market, a VC is unlikely to jump at it. In these cases you’re better off trying angel investors or crowdfunding sources - your typical VC investor will want a 3x to 5x return on their investment.
Something that fits their own strategy
VC funds also have their own strategies, just like any other business. If they tend to invest in healthtech firms, but you’re pitching them a beauty ecommerce company, they won’t bite. Do your own research – a VC’s portfolio is usually a good starting point.
Do your homework
First and foremost, make sure you have a solid business plan. If you don’t yet have one, or if you want an impartial second pair of eyes to take a look, talk to a startup accountant. If you don’t yet have a startup accountant, compare accountants to find the right one for your needs.
That said, here are some things you’ll need to have ready before going out there:
Ensure your company has the correct legal structure; you can’t give equity in your business unless you have a legal entity with shares. Have a share capitalisation table ready (commonly referred to as a ‘cap table’); this sets out the structure of shares in your company before and after the investment you seek.
A detailed business plan, including market research, any traction to date, financial forecasts, the amount of investment being sought, and how you’ll spend the money. You would, most likely, provide this information in the investor/pitch deck. It’s important to develop financial projections that are rooted in verifiable assumptions - don’t exaggerate beyond belief. While it is important to show prospective investors that you are ambitious about growth, exaggerating too much will make you less credible in the eyes of investors.
Do your research; know there is demand for your product and customers willing to pay for it no investor will throw money at something no one wants.
Get your pitch deck ready - VCs especially will expect to see this - but make sure it doesn’t look the same as everyone else’s. Tell your own story in your own way. Don’t be afraid to stand out.
Do your research and know everything you can about who you’re talking to. Create a list of prospects, rank and qualify them, research the partners and the firm. Also make sure you follow-up after your meeting - it’s good business etiquette.
And remember to network! Reach out to connections who may be able to introduce you to potential investors, or who can act as a mentor and advise you along the way. Of course, a startup accountant can also act as a mentor and help you to get the financials ready for scrutiny by potential investors.
How can a startup accountant help you with all this?
Investors love numbers, and often that’s all they’ll look at (especially in later stage funding): what is the growth potential, how much money do you need to get there, and how much ROI can they make by investing in your startup. This is where your startup accountant becomes your best friend; lean on them and use their expertise.
To do this, though, you need a strong relationship with your startup accountant. Whether you are starting your accountant search from scratch, or you’re looking for a fresh pair of eyes, it pays to compare accountants to find one that gels with your own style. With PROfiltr you can compare accountants in three simple steps; get started with your free quotes here.