Raising capital is essential for start-ups. However, it is a complex process in which young businesses regularly get stuck. That’s why we asked our alumni from AreTheyHappy to share their experiences and tips for a successful capital round.
#1: Don’t ask for money, ask for advice.
A capital round may come your way by chance while you are not explicitly looking for money. At AreTheyHappy, this was the case. “We asked for advice from experienced entrepreneurs and had no intention of asking if they wanted to invest. After the conversation, they asked us if we wanted to raise capital,” says Hannah Albarece, co-founder and CEO of AreTheyHappy.
Of course, this does not mean that you should disguise the purpose of a meeting, should you be looking for capital. Always be open and transparent about your ambitions, this is always appreciated.
#2: Don’t start collecting too early.
Before you start raising capital, you need to know if you are ready for it. It’s a big step and it can end badly if you choose the wrong moment.Paul Graham, founder of Y Combinator already stated: “Don’t raise money unless you want it and it wants you.”
Not every start-up is at a stage where a capital round is useful. After all, raising money puts a lot of pressure on the shoulders of the founders. Some start-ups also do not need to raise capital and can continue to grow through other forms, or even without funding, such as bootstrapping. In doing so, you will be very efficient with your financial resources and you will turn over each euro twice before spending it.
Hands-on support in raising capital? Sign up for the Birdhouse Accelerator!
#3: Make sure you have a good story
A good pitch is essential to convince investors. So make sure you have a good story, and that you can present your problem and product smoothly. As Y Combinatoral stated in seed fundraising, “Investors are looking for compelling founders who have a believable dream and as much evidence as possible documenting the reality of that dream.”
How to write the perfect pitch? Read our tips!
#4: Be prepared.
Good preparation is half the battle. This is especially true if you are going to meet potential investors! They typically want to see facts and figures that show your startup is worth investing in.
What information should you bring? Of course, that depends on your product or solution. But be sure to answer the following questions:
– What is your market?
– What’s your strategy?
– What does your team look like?
Also show that you are thinking about your future and that you have a strong plan. This doesn’t have to be perfect, because some things will change as you grow. But a well-prepared team is much more attractive to investors.
#5: Choose smart money.
Convincing investors is quite a challenge. But that certainly doesn’t mean you should take capital from everyone. Above all, make sure there is a good match between investors and your start-up. So pick up smart money.
Smart money means that investors not only contribute money, but also their expertise, mentorship and network. But it is also important that you get along well on a personal level with your investors and that you share the same strategic goals.
Make no mistake, investors are demanding and have certain goals to achieve. But they are ultimately there to help you move forward.
#6: Think about the long term.
During your current capital round you should already be looking at your growth plan. Your current investors can also participate in possible future capital rounds. That doesn’t mean you should turn away smaller investors, but thinking about next rounds of capital, and how your current investors can participate in them is certainly a good reflex.
#7: Choose good people around you.
Our final tip is to think not only about the investors, but also about who is assisting you. People like accountants, auditors, notaries and lawyers can be crucial in bringing a capital round to a successful conclusion.
Raising capital is difficult and you will need all the help you can get. So don’t hesitate to compare different service providers and see if there really is a professional and personal match. You can also ask Birdhouse Services for advice.