What Every Startup Must Do to Get Investor Ready
Raising capital isn't easy, but luckily you can make all the right things ahead of time to be good to go when opportunity knocks. Fortune favors the prepared founder.
Advances in technology have given way to a proliferation of new startups. So, when it comes time to begin looking for those elusive investor meetings, you’re competing against more startups to secure time with investors. This competitive buyer’s market also holds the potential to drive down valuations, and even what once was considered the typical funding round.
So in a sea of many, how does one stand out? Here’s how you can get your startup investor ready.
The right financials
There are a plethora of financial statements that investors look at when looking at a company, so it’s important to have them on hand and ready at a moment’s notice. Income statement, balance sheet, the list goes on. It all depends on what stage the business is in, because in the early days you might not have any financial reports to rely on.
At the very least, being able to present your business’ current status and a projection of where you’ll be in the next one to five years is key. It’s important that you have a summary of your current results and a projection of what your financial results will be over time, predicated on the capital you see from the investor.
The right ingredients
VCs want to invest in a team, rather than a solo entrepreneur. They want to make sure if the CEO is suddenly taken away from the business, there’s a succession plan in place. Moreover, VCs look for other levels of support so that from an operational vantage, you have the right people to deliver success.
VCs want to see a business plan, as well as the market opportunity and how you’re going to be able to address the market opportunity or pain point with your solution. You need to demonstrate a clear path to financial success and profitability.
Understand what you’re asking for.
It’s easy to put a number down on paper, but it’s more important to ensure you know why you want a certain amount of money, that you understand your valuation, and it makes sense. You don’t want to ask for too much or too little. Landing on the right figure might require input from a third party like a financial consultant or an advisor. If you’re just starting your business, you might even consider establishing an advisory board. Whether it includes an investor or not, it can be hugely helpful.
The right investor and introduction
One of the biggest challenges founders face when attracting capital stems from not doing enough research and finding the right investor. There are a lot of different angel investors and VCs out there, so make an assessment of your business as well as the type of investor you’re looking to get on board. You can waste your time throwing anything at the wall hoping it will stick, but that’s not really an efficient or successful approach. Match your business with investors that are genuinely interested, or have a core mission that is servicing whatever your business offers.
When the time comes, a warm introduction from someone in your network or someone who knows the angel firm will get the relationship off on the right foot. A friend or colleague will help give you a sense of whether you can trust each other. Trust is one of the most important aspects of raising capital, so making sure that your investors trust you and you trust them is key.
The road to raising capital can be long and arduous, but with the right approach you can stand out and get in front of the right people.
Ryan Himmel is a CPA and financial technology executive who has dedicated over a decade of his work toward providing solutions to help accountants and small-business owners better run their firms. Himmel currently leads financial partnerships in the Americas for Xero.