There are few things in life more exhilarating than a great startup idea. I know the feeling well — I’ve built and sold numerous businesses, including one company I sold to eBay, and raised tens of millions of dollars for other startups.
The rush of a startup idea is like nothing else (often even better than the exit), but an idea is just that. It requires capital, and while bootstrapping is almost always the right way prior to raising outside capital, the process can oftentimes be futile and complex.
The good news is that raising startup capital is a process that can be learned by all entrepreneurs and in most cases, there are more options than most entrepreneurs realize. But before we explore my top tips to ensure a successful raise, remember that VCs and investors have a different mindset than entrepreneurs.
What VC’s really want
Startup entrepreneurs want to scale a company, control it, and profit, while the VCs and angels want to maximize return on investment with as little risk as possible. The latter sometimes puts them in a position to desire more control. The goal is to find that perfect balance between both sides’ needs and align everyone’s interests for a successful outcome.
One additional consideration is how you intend to return capital to your shareholders (including yourself). This question often trips entrepreneurs the first time they raise capital, because it’s very challenging; even counterintuitive to consider an end point when the process has just begun.
However, having raised tens of millions for my startups over the years, I’ve found that making it clear that I understand that investors invest to make money is an important part of the fundraising process. This will serve you well as you consider raising capital for your business.
Deliver solid business and marketing plans
This is vital. Have a clear and concise business and marketing plan. Make sure your plan shows the exact nature of your business, what you plan to achieve, and how it is unique from others in the simplest of terms. Share concrete plans about your leadership team and how quickly you can scale it. Remember to underscore how much money you think is initially needed.
Also, illustrate how the marketing plan in place will truly garner traction in the shortest amount of time. When talking with founders of companies I’ve invested in, marketing plans have sometimes superseded the actual business idea.
Know everything about your industry
Investors won’t waste time on a startup with little knowledge of its industry. The more you know, the better. Know the history and all the latest news–who is leading, failing, and more importantly–why. Show investors you know more than your rivals and are willing to create a valuable and sustainable vision for the future of your business.
Perfect the investment pitch
Think like a journalist during an interview. Make sure your pitch effectively — and within 20 minutes or so — covers the who, what, when, where, why and how of your startup. Get to the point, be honest, and engage whenever a question is asked. Again, be sure to know everything about your industry: Questions will surely be brought up about certain competitors, so be prepared.
When I’m talking with potential startups I want to invest in, I always ask about their competitors. If you’re using a slideshow, keep it to under 10 slides and only use it for material that backs up what you’re saying. Don’t use it as the focal point; make the focal point you.
Show financials along with revenue streams
Investors want to invest in businesses with extremely organized financials, and may ask for them at any time. Make sure you track every expense and have it ready to show investors. If you can’t deliver a report of pre-investment expenses, how well will you be able to show a post-investment expense?
Also, if you have an active stream of revenue, exploit this as much as possible. Nothing carries bigger clout for an investor than traction from paying customers. If possible, try to land some paying customers before pitching to investors. This can make all the difference.
Connect with others who have successfully raised capital
I’ve learned — and continually learn — from others. This is another vital factor for success: Find others who have successfully raised capital, and learn from them, regardless if they’re in your industry or not.
While talking with other VC-backed founders, be passionate. Networking can lead to introductions and people who can help you make additional progress. Investors thrive amongst smart and passionate people.
Once you have exhausted all personal resources through bootstrapping, your business will likely need to raise capital. But it’s not as easy as approaching a VC or angel investor. You must be well-prepared and show serious value. And who knows — your pitch may cross my desk one day.
This article has been edited.
Kristopher Jones is the founder of LSEO, a full-service SEO Company, and APPEK Mobile Apps, a mobile app development agency. Raised $1.5M for Special Guest App.