Raising Capital: how, when, what for and with whom

Our experience, observations and a must-have check-list

When raising money for a business, one should have a clear objective – the “point B”, which, when achieved, should multiply the invested capital, not waste it. Let’s dive into some of the most common easy-to-spot mistakes:

• Raising money just because you’ve run out of cash
• Pushing forward a product which the market doesn’t need
• Trying to scale up too early
• Seeking “dumb money” when you lack connections or experience in an industry
• Handling the fundraising process unprofessionally

If you find your current situation similar to the bullet-points above – stop your fundraising campaign before it’s too late and change your approach.

Now, let’s see how it should be done.

How?

There are two ways: trying to get lucky and doing it properly. And we’re here to elaborate on the latter. Raising money is an intricate process with many small details and hidden layers. To start, there is an extensive list of documentation that has to be intact for your project to be considered “Investment-ready”. The exact list varies from case to case, but in general, you should stick to these items:

• Market research. You must conduct a deep, thorough, and extensive investigation into the market you’re about to enter. Gather all of your direct competitors or companies with similar products and break their USP’s, killer-features, strategies and tactics. Then – adjust your own and ensure you have a superior product, both economically and from the client’s perspective. Next – analyze competitors’ key metrics and make an approximation of their revenue and profits to see what heights your business might reach.

• Build a strategy. Think about your Go To Market strategy and measure all risks. Have you accounted for possible setbacks? Learned from mistakes made by your predecessors? Has your strategy already been tested by someone else before? But does it have unique, possibly break-through elements? Measure all risks and ask for expert feedback – it’s always better to look at things through different lenses.

• Financial model. Make adequate projections on your client growth, costs, cash-flow, market penetration rate and a set of other key indicators. Don’t forget to support them with your market research data – remember, setting high targets is cool, but it’s important to have a realistic picture in front of you to attract money and eventually succeed​ with the product launch. This way, you’ll know where the bottlenecks will be.

• Do not obsess over percentages. It is important to have a fair valuation, but keep in mind that being too greedy can ultimately cost you the round.

• Licenses, contracts and compliance. On the legal side of things, make sure to consult with an expert to save yourself from unexpected headache.

• Are you with the people who can deliver? Results speak for themselves – a successful track-record of your team, combined with their deep, industry-specific experience and successful cases is the best pitch you can give to investors. Keep in mind you’re doing business, not start-up games.

When?

Probably the hardest part in raising funds is timing the process. If you look for money at the wrong time – nobody is going to give it to you. Common mistakes in this part are all caused by making wrong assessments. If you’re raising money just because your business isn’t making any, you’re doing it wrong. Make sure to conduct an audit instead – find a competent, experienced third party that will review your practices, methods and business process. On plenty of occasions, even something as obvious as a thorough optimization of AdWords can have a significant impact on your revenue.

Make sure you don’t raise money just to live through to the next round. Many startups – and I mean MOST of them – do the following; raise a seed round, make an MVP, and then do nothing but look for the next investor with a bloated “Round A” valuation. You can guess how most of them end up – making another startup after the previous one fails. Needless to say, this is a wrong and unethical approach, which is definitely fated. What you should do instead is work on your traction and show actual business progress – in revenue, customers, strategic symbiotic partnerships and intellectual property enrichment.

What for?

Unless you’re sending rockets to Mars, the only objective you should have is to make profit. This could be expressed in cash, increased business valuation whatever else. Point is – you take money to make more.

The way to do it is by using the money to get your company from point A to point B – following your pre-made strategy and being flexible when there is a need for deviation from the original plans.

With whom?

Do your homework on several things.

• What kind of money do you need? There are only two types – dumb money and smart money. Do you have a super-strong senior team with plenty of experience and successful cases on each individual member’s track-record? If so, then you probably need the former. However, if you are a first-time entrepreneur feeling like things are going your way but you aren’t exactly sure about what’s waiting for you around the corner – then make sure to look for an investor who can also serve as a mentor, guiding you in the right direction.

• Do your homework on VC’s. As you probably know, investment institutions (and private investors for that matter) have a specific area of expertise which defines where they will put their money. Needless to say that an investor in BeyondMeat is unlikely to fund a robotics startup, so make sure you are targeting the right people.

• Are you sure you need investors and not industry partners? Look around – there might be a larger company looking to expand in the direction of your work. Maybe, attracting investment from that company is something to consider.

Final word

Last but (definitely!) not least – do not search for investment on your own, ask professionals to do that – this is too important a process to make silly mistakes, and you will never lose from getting assistance from people who’ve successfully done this before.

We are always here to assist. Having raised money and converted it into working businesses numerous times ourselves, we’ve grown to know all the ins and outs of the process and made every mistake we will help you to avoid.

In our work, we value strong teams and professional conduct, as well as the ability to progress, adapt and excel in the fast-changing world. But above all, we put emphasis on integrity and individual approach in building prospective relationships with our partners. Because at the end of the day, we’re here to do business, not just marketing.