Fundraising is a rollercoaster, so here are 6 practical lessons for founders to get you through it.
Let's face it: Fundraising is brutal.
It can feel like a roller coaster, filled with highs and lows that can leave you questioning your path. And the statistics don't lie...
While there's no foolproof guide to raising capital, there are steps to enhance your journey and ease the anxiety after 50 rejections.😅
Before stepping onto the fundraising roller coaster, clarity about your funding goals is paramount. Understand which type of investor or funding best aligns with your company—strategic partners, venture capitalists, angel investors, or crowdfunding.
Consider the variety of funding instruments at your disposal. In ecosystems like Ireland, accelerators can offer crucial support via equity, CLNs, or SAFEs. Government grants, while sometimes non-dilutive, may require match funding or come with performance stipulations. Understanding these nuances is more than academic; it's essential for aligning your company's trajectory with investor expectations.
Here are the two options most startups choose from:
Of course, many entrepreneurs "simply" bootstrap their business, meaning self-fund it with their own savings or asking friends and family to invest or even join a crowdfunding platform. Moreover, just because you want to raise money from a VC for example doesn't mean you're market opportunity is big enough for them. In fact, only 1% of startups actually raise VC capital 🫢 However, if you have the market opportunity and optimize for financial returns, only the above options will take you onto the fundraising journey where you're expected to pitch your business idea, showcase potential ROI and dive deep into the question "Why you?".
If you have clarity about the possible options and what you have to expect from each, you can navigate the twists and turns of each with more confidence and have a clear direction to your fundraising efforts.
Despite common belief, the size of a funding round doesn't necessarily explain the funding stage. Early-stage companies can secure substantial amounts by showcasing market opportunities without bypassing Pre-Seed or Seed stages.
For investors, funding stages illuminate your startup's risk profile; each stage presenting distinct challenges:
Another point to consider is how much money you strive to raise in each funding round. If you raise too much money in early rounds, you give up valuable ownership that attracts investors in later rounds. Additionally, your startup is still evolving and you probably want to retain enough control to make strategic adjustments wherever you see fit, right?
As your startup proves its worth, you’ll attract more customers and orders, which will naturally drive up your valuation. When you eventually seek funding for scaling, you’ll dilute fewer shares because your pre-money valuation will have risen.
So you see, raising money through funding rounds requires strategic planning and managing one's own expectations realistically. That's why Lesson #3 is super important.
Once you've clarified your funding goals and understood your risk profile, it's time to make an actionable fundraising plan and implement dedicated processes in your day-to-day operations. Think of it like the sales or marketing department, now you have a fundraising department.
A structured approach, borrowing tactics from sales and marketing, reduces stress by offering a clear schedule. Here's your step-by-step guide:
1.Build a list of investors
2. Get networking and warm up leads
3. Maintain consistent communication
There are 305 million startups created globally each year and only about 40.000 investors actively investing as of 2022. To stand out of the startup pool, you have to build leverage or, basically, create FOMO (fear of missing out) for investors. They should not want to miss out on the exciting journey your startup is on!
Leverage is the secret sauce that makes investors eager to join the ride with you. Here are a few ways you can create it:
If you can showcase the buzz around your company, growing interest, and the potential of significant returns, investors are more likely to line up for a front-seat on your fundraising roller coaster.
When you finally get to the point where you get that crucial "Yes" from an investor, it will set off a chain reaction, propelling your startup forwards and you start building momentum. However, before you get that first "yes", there will be a lot of rejections and "Maybe's".
First of all, embrace the "No's". It wouldn't be a roller coaster without a descent before the next ascent. The key lies in viewing rejection not as a setback but as a redirection, an opportunity to refine your pitch and strategy. And it's certainly better than being ghosted! Whatever feedback you get, take it with grace and be respectful - you never know when your paths will cross again.
Moreover, not every investor will share your vision, and that's perfectly okay! In fact, it's beneficial. You want to seek investors who resonate with your vision and align with your values as well as enthusiasm.
Yet, amidst the clear distinctions of "Yes" and "No", lies the ambiguous realm of "Maybe". Interpreting "Maybe" responses requires a nuanced understanding, distinguishing between cautious interest and polite deflection. Genuine curiosity, follow-up questions, and expressed engagement are signals of potential interest. On the other hand, vague or non-committal responses may indicate a lack of alignment. Entrepreneurs must proactively seek clarification, fostering transparent communication to discern genuine interest from indecision. It's this skill of navigating the grey areas that separates adept fundraisers from the rest.
Here's a great overview from Mikkel Sundø on how to interpret what VCs say:
Just remember, securing that initial "Yes" sparks the momentum, but it's your ability to embrace the "No's" and "Maybe's" and navigate the uncertainties that define your resilience as a founder.
Once you get on the emotional roller coaster of fundraising, stress is an inevitable companion. Not trying to sound dramatic but the success of your startup can turn your life around completely. Prioritizing self-care in this scenario isn't a luxury, it's a strategic necessity.
Picture self-care as the emotional seatbelt that keeps you secure during the twists and turns of the fundraising roller coaster. Adequate sleep, regular exercise, and moments of relaxation are not just indulgences but essential tools to equip yourself for the challenges ahead. Stress management is not about avoiding stress altogether, but about building the capacity to handle it effectively. Just as a roller coaster is designed to provide a thrilling yet safe experience, self-care ensures you can navigate the exhilarating journey of fundraising with resilience and poise.
Here are some practical tips:
Congratulations! You've now completed a crash course in surviving the emotional rollercoaster of fundraising. The startup journey is undeniably challenging, resembling a rollercoaster ride full of exhilarating highs and daunting lows. As founders, you're not merely passengers; you're the architects of this wild journey.
In the startup world, where uncertainty and risk are constants, fundraising becomes a rite of passage. We've explored the critical lessons to equip you for the twists and turns, providing not just survival strategies but the tools for a triumphant ride.
The startup community thrives on shared experiences. As part of a startup myself, I'd love to hear the lessons you've learned and the tips that saw you through.
Share your insights in the comments or connect with us on our LinkedIn page!🚀
Sources used:
Header picture adapted from: https://medium.com/@mikkelsundoe/5-tips-on-how-to-speak-vc-and-raise-capital-5738f7bd3737