Here are Tapio’s seven tips for first round of fundraising!
1. Get on the Same Page
Before taking any further steps on your fundraising path, make sure all partners are on the same page about the company’s future.
What are your goals for this year? What are your goals for the next five years? How will you achieve them? What is your business strategy?
Before contacting investors, you must have clear answers to all these questions. It is not uncommon that investors withdraw from discussions just because the current owners do not have a shared vision of the company.
2. Document, Document, and Document
Before making any decisions, investors want to see all employment contracts, accounting, shareholder agreements, and commitments to other companies. You should store these in an orderly manner in a safe and easily accessible place.
If you need assistance in creating proper contracts, paying a lawyer a small fee can pay great dividends in the long term – at least in peace of mind.
One good way to keep track of your business decisions is to have a weekly meeting with the owners and document all decisions made in these meetings. It may sound like extra work, but a structured way of working helps you and your team as well. When all owners agree on minutes, there will be less grumble later.
3. Do Not Base Your Ask on Optimism
Often startups raising their first round do not have any idea how much money they want or how they intend to use it. Naturally, investors will not invest in your company if you do not know what you are doing.
Before approaching any investors, create a realistic, long-term plan. In addition to first round, the plan should cover potential second and third funding rounds. Do not try to impress with modesty. It is a common mistake to think that investors are more likely to prefer smaller investments. As a rule-of-thumb, your ask should cover your business’s needs for 18 months.
Remember that investors are interested in profitable investments. They want to know the basics from your product, but on top of that they want to know the numbers of your company: top line, bottom line, fixed costs, cost per unit, and your view on how much growth potential the company has.
4. Always Have an Exit Plan
In business and airplanes, one should always have an exit plan. Plan it well before it is relevant to you in any way. Investors are also interested to know about your exit plan to forecast the future of the company.
Finding your own company is probably one of the most hectic periods in your life. But circumstances change, maybe you do not want to be an entrepreneur for the rest of your life? Exit plan, even though you never trigger it, helps you to plan your life in the long term.
5. Justify Your Valuation
As you may have already understood by watching the Shark Tank, valuation is not an absolute number. There are multiple ways of calculating it, and you can end up anywhere between zero and hundred million euros. At the end of the day, valuation is the sum that the investor is ready to pay.
Prepare to justify your valuation. Since there are several ways of calculating it, step for a moment into the investor’s shoes and think about the factors he or she could consider the most relevant. Before discussing the actual valuation with investors, it is more useful to discuss the factors that affect the valuation. When you and the investor agree on this, the negotiation will be much more relevant.
6. Know Your Potential Investors
Fundraising is a full-day job. That’s why it is so important to know your audience. The majority of investors have a profile: some only invest in EdTech, some do not invest in companies at the very beginning of their journey.
Obviously, it is a waste of time to schedule meetings with investors that do not fit your profile. Instead of cold-calling a hundred investors, hand-pick five and tailor your pitch and presentation for each candidate.
Focusing on the most relevant candidates will free your time from fumbling with investors to actually developing your company.
7. Timing Is Everything
Do not start too late. Funding rounds usually take about six months. The less money you have on your account, the less negotiating power you have.
Because fundraising is so time-consuming, you must ask enough to support your business. When you start early, you have more time to plan and execute efficiently – and you actually end up saving time to spend it on your actual business.
Interested?
We are happy to tell you more about our services. You can contact us at startupcenter@aalto.fi or leave your application straight away to our Gust-account. We review and accept applications continuously. You can also meet us in Arctic15, the most effective matchmaking startup event in the Nordics and Baltics, taking place in Helsinki May 30th and 31st, 2018.
Aalto Startup Center runs a Business Generator program for startups in Espoo, Finland.We offer our services to startups at the beginning of their journey. Business Generator lasts 1–2 years and provides startups with advice, coaching, tools and modern, communal workspaces, as well as networks for fundraising. We are part of Aalto University, a multidisciplinary university, where science and art meet technology and business.