Are you a founder struggling to raise external funds? The “Why?” “When?” “How Much?” questions of raising money can be enough to keep you awake at night. There are numerous reasons why you might need to raise external funds; from acquiring inventory, and hiring sales resources, to marketing, and expanding product lines. Knowing when you’re ready to pitch to angels is essential, and it’s an important discussion for you, any co-founders, and closest advisors to have. You might raise when you have already proven to investors that you can realize your vision or the opportunity has a large market to sustain a business. Investors may come aboard when you have identified and mitigated enough risks to invest their money.
And then there is the big question, “How?”… “How do I prepare my business for investment?” Preparing for your first investment round can sometimes be a daunting task. It requires meticulous planning and a comprehensive understanding of your business.
Businesses that are ready for an angel round of funding:
- Have an MVP: Investors are looking for proof that an MVP, or minimum viable product, has a good product-market fit. Ensure you have a clear value proposition and a deep understanding of the market.
- Have a compelling business plan: A solid business plan is the foundation of any successful startup seeking investment. Your plan should clearly outline your business model, target market, competitive landscape, revenue streams, and growth projections. Investors want to see that you’ve thoroughly analyzed your market and have a well-thought-out strategy for success.
- Have built a ‘moat’: Moat is another term for a sustainable competitive advantage. This is your ability to maintain a competitive advantage for protecting its market share and long-term profits from its competitors.
- Have demonstratable scalability: Investors are interested in startups with the potential for scalability- ensure that your business model is efficient in its present state and can grow and adapt as your customer base expands.
- Have a financial plan: A clear understanding of your financials is not only expected from a startup at this stage but is non-negotiable. You should present a realistic and well-researched financial model that includes revenue projections, expense forecasts, and a clear path to profitability. This will help investors gauge the financial health of your startup and assess its potential for sustainable long-term growth.
- Have a data room: A data room is a storage space where companies store information relevant to due diligence, either in digital or physical form. It is never too early to put together data. You can use Dropbox or Google Drive to host your data room. In a data room, you can provide videos of product demos, financial statements, articles of incorporation, shareholder agreements, patents, etc. You will also need to have your cap table, employee contacts, and much more. Find out more about data rooms by completing AIO’s Knowledge Hub course on Data Rooms.
As a founder, approach your fundraising process like a sales process. Use sales-savvy tools to achieve the best results. Use a CRM to track every touchpoint, consider upgrading to LinkedIn’s Sales Navigator for research, use DocSend when you send out your deck, and use HubSpot to send out updates and track opens. Treat your fundraising like a professional sales process because that’s precisely what it is.
Angel investors provide “smart money” – a combination of strategic investment and financial investment. Angel investors can offer access to mentorship, advisors, and connections to networks and industries.
Don’t forget, the investment process is not just about securing funds; it’s about building a foundation for sustained growth and development.
Originally written for TBDC by Kate Tomen VP of Business Development & Operations