How to Smartly Raise Funds in North America
Unlike casting a wide net on your potential market, you'll need to definitely narrow down the list of probable investors
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Based on a statistic from 2016, 39 of the top 100 unicorns are not actually based in the US. Today, that number is definitely higher. A lot of international companies are getting their funding from North American VC's, which brings the question: should your company be looking for the US and Canadian funding and if so, why? At Launch Academy, I've worked with a lot of companies that have either expanded their business to North America or even relocated their headquarters to Vancouver, Canada — mostly through our Maple Program. Every company requires funding. But funding comes in many formats. The most ideal is from paying customers, but the more common path for early stage tech companies is through venture capital. Before you start trying to fundraise through VC's, ask yourself: why am I raising and why is it in North America?
Set your base in North America
To raise in Canada or the US you should start by building a presence in North America. Effectively, you should setup a US or Canadian entity that is either local or foreign investors can invest in. Why do this? Well, it comes down to the bottom line for investors; investing in foreign companies often leads to a lot of tax reporting issues and a lot of the times foreign investment restrictions are written into investors partner agreements.
Explain your success
One of the biggest traps companies fall prey to is spending too much time on their investor deck and not enough time building up customer validation. When you're telling your story, incorporate this customer feedback into your companies trajectory. For instance, how your product was introduced in an unsatisfied market and began to solve the problem.
Discover your valuation
Your valuation is always going to be made up, a "guesstimate' of sorts. Early-stage valuation is subjective and often influenced by two things: 1. What is the target equity? 2. What are the valuations of comparable companies that have recently raised funding? You should understand the potential value of your company as a multiple of current and future revenues, IP, market penetration, etc. The amount you raise should keep your company afloat for the next 24 months, or long enough to achieve pre-set milestones.
Know the right investors
Unlike casting a wide net on your potential market, you'll need to definitely narrow down the list of probable investors that will be interested in your company. Platforms like CrunchBase and Angellist are great tools for identifying investors and seeing what stage and type of companies they invest in. Next step is to get a meeting. Avoid cold emailing. Investors are much more open to meeting if you've been introduced through a mutual connection. Often times, the best approach is to systematically get a good network of advisors or secondary connections that are open to helping.
It's all in the close
You need to be prepared with the North American style of meetings. Plus, keep these points in mind:
1. Remember your narrative. Go into the meeting avoiding assumptions and industry acronyms. Explain your business as concisely as possible and make sure to include your unique selling point (USP).
2. Know your audience. If you're talking to VCs they'll probably have a due diligence process, whereas an angel might be ready to hand over a check at the end of the meeting (if you're lucky!)
3. Be truthful. Don't exaggerate or try to fake it. People can tell if you're being dishonest and they will never want to invest with someone they can't trust.
(This article was first published in the January 2019 issue of Entrepreneur Magazine. To subscribe, click here)