7 Rules for Raising Funding For Early Stage Tech Startups
For every startup owner, the biggest challenge is acquiring the right amount of funding. Getting investors to invest in startups can be a formidable task. Despite an innovative idea and detailed plans, startups fail if they don’t have a reasonable financial runway and a robust startup growth strategy. Our 7 tips are derived from our experience, they have several key elements in common across investment and fundraising activities:
1. Market Research — The “startup” is a grand experiment to validate your idea and find an economically sensible, scalable business model. Investors are willing to invest in startups and founders who can display extensive domain and market knowledge. Founders should incorporate the Lean Startup principles and customer discovery in their startup growth strategy — build a prototype, get feedback, and apply changes based on that feedback. This process allows you to make sure your product has legs before you go all-in. Save your money and time, by asking the market what it wants. Founders must remain curious about how people are interacting with their product. Constantly test new features to work out what works and what doesn’t work.
2. Price Testing — If you’re creating a product that is extremely disruptive it’ll be difficult to figure out how to price your product. A flawed product pricing strategy can deter investors who want to invest in startups. Start by understanding your target client and how to use pricing as a form of communication. As you begin to understand your product/market fit and the problem you’re solving, you can begin to use price to communicate your company’s values. Price testing should be an integral part of the startup growth strategy. If your product is an online solution, you can apply this price test method: don’t target individuals, rather, create random subsets of customers and display different prices across the customer base without any discrimination. Dynamic pricing may feel intimidating, but small data-driven changes can have a huge impact on profitability without scaring away customers.
3. A detailed business plan — A detailed business plan is an essential step to attract investors to invest in startups. If you’re at the growth stage or you’ve previously secured venture funding we recommend a detailed business plan for investors. Whilst a startup, especially a tech startup can be chaotic, a business model and execution strategy can help steer the ship.
An investor focused business plan should present a disruptive business opportunity in a data-driven and results-oriented fashion. A holistic startup growth strategy should include — an executive summary, company summary, market analysis, team overview, and revenue projections. The executive and company summary should outline the goals of the company and the company background. The market analysis charts an in-depth investigation of the target market segment. The team section zeroes in on why the founding team is capable of executing the grand vision, including qualifications, skills, and previous experience.
Finally, the revenue projections, when you have a startup in seed or pre-series A stage, internal control of KPIs and financials is essential for you and your investors. Here, include an overview of the sales forecasts, expenses, cash flows, income projections, and more.
4. Pitch Deck — If you’re at the ideation stage and seeking funding, don’t just send the same pitch to every investor, try to tailor the startup pitch content to suit the investor. Creation of a pitch deck and choosing the content wisely helps in getting the idea and business on paper, enables continual questioning and refinement of thinking and motivates investors to invest in startups. Investors want to see that you know your market and your customers. Go deep on your narrative and answer — why this, why now, why you and how. Clearly explain what problem your startup solves and how/why people will pay for it.
5. Bootstrap — Bootstrapping should be an important component of your startup growth strategy. Bootstrapped companies are forced to focus on cash flow from day one because the only thing that’s going to put food on the table is learning how to properly set and achieve sales targets. Bootstrapping will force you to find solutions on your own where you would have paid for outside help. Bootstrapping is starting lean and fuelling your own growth. Investors are impressed by a tactical plan to self-fund without any external capital and as founders it builds credibility
Before you rush out to fundraise, increase your leverage by outlining a startup growth strategy to minimise operational costs and expenses. Bootstrapping examples include co-working, sharing office services, deferring capital expenditure, teleconferencing, hiring interns, and more.
6. Networking — Investors usually don’t invest in startups upon the first meeting. As an early-stage tech startup, they are betting more on the team than on the business idea, although the business idea must still be good. Networking and building relations with investors will lead to more relations with other investors. For an initial reach-out, LinkedIn is not a bad place to start but a personal recommendation and a warm intro will get investor’s attention. Reach out to friends and family, other startup founders, and talk to your peers in co-work spaces for investor introductions.
7. Startup Advisory — Fundraising activities can be a real pain! Reach out to a fundraising advisory such as 7 startup to ease the process and focus on your startup growth strategy. Startup advisory firms possess the expertise and experience to help early-stage startups get funding from a bank of investors, design a world-class pitch deck and investment strategy, develop a detailed strategy and financial projections for investors.
There’s no magic trick to landing an investor, follow our 7 rules to get funded!
Amit Khanna is the founder of www.7startup.vc and has 18 years of experience with Startups and the Enterprise with an MBA, focusing on Growth and Investments. Amit supports entrepreneurs with every aspect of their business including concept and product development, investor presentations, fundraising, and scaling up.