Raising capital for your startup can be an intimidating process. Not only is money hard to get — especially from venture capital firms — but even pursuing it requires extensive preparation and positioning.
This post covers some expert advice from Lighter Capital CEO BJ Lackland about how to best position yourself to pursue funding from VCs, angel investors, alternative funders, and other sources. Some of the items on the list are logistical items like having your unit economics at your fingertips. Others require a little deep thinking about what exactly is driving you to pursue new money.
1. Determine your target capital providers
Do substantial research before setting out to find funders. Who provides the kind of capital you want? Do they fund companies like yours? What are their requirements? Which is the likeliest to actually fund you?
Think not only about what the funder may want but also what you want. What kind of partnership do you want long-term? The answer to that will depend on your long-term goals for your business. If you want to grow exponentially and then make an exit, a VC may work for you. However, if you want to grow steadily and sustainably without giving up control, other funding sources will be a better fit.
2. Have your documents ready and your affairs in order
You should have a business plan, financial projections, and a succinct pitch deck ready to help present yourself to prospective funders. If you’re looking for equity, think about how to demonstrate how you’re disrupting an industry. You don’t need a pitch deck if you’re seeking funding from Lighter Capital.
You should also have your legal and financial documentation in order and up to date, such as articles of incorporation, bylaws, and capitalization table. You should understand your shareholder agreements, if you have any. Check with your lawyer to make sure that you’re in good standing with the state in which your incorporation papers are filed. The latter is important, since you won’t be able to get funding if you’re not in good standing.
Your historical financials should all be relatively up to date. You should have available all the major stats for your unit economics, such as customer acquisition costs (CAC) and customer lifetime value (CLTV). Learn what SaaS metrics you should know before starting the fundraising process.
3. Think through how much funding you need (and for what)
Hosting marketing events, developing new product features, hiring salespeople, expanding into a new territory…the list goes on.
Why do you want to do what you want to do? And what are the specifics?
For example, if you want to hire sales reps, you must have numbers worked up on what that will look like financially. Say each sales rep brings in $2 million in annual revenue after a ramp-up period of one year. Saying exactly that is a much better approach than relaying a vague goal like “boosting sales to increase growth.”
4. Get specific on how funding will drive growth
Most of the time investors want to know how much of their investment will be for working capital and how much for growth capital. And when it comes to growth, they want a firm plan.
Are you going to invest a lot in marketing? Are you going to hire multiple sales reps? Whatever you’re going to do, what do you expect to get for the money and how will that help your company grow?
You’ll need financial projections, especially for equity investors. Here’s a good example of a statement along these lines: “I’ll invest in seven sales reps who will increase my annual revenue by $20 million.”
Positioning yourself for funding requires some sustained attention but it shouldn’t be intimidating. It’s simply a process of making sure you know your business inside and out, and have thought through how funding will help you reach your goals.
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