Your Best Fundraising Tactics
Fundraising will make or break your organization, especially in its early days.
Before a business gets up and running, it is important to come up with a plan to strategize the steps ahead, if you need external investment.
There are many different ways to approach fundraising tactics and strategies will look different depending on different aspects of said business.
What is a fundraising tactic?
A fundraising tactic will define how your organization or business will implement the strategies to generate funds in the short term, and the long term.
Your fundraising plan consists of your business model, planning ahead, dependable and preferred channels to receive investment from and a lot of patience. This is an extremely important step in the development of your business roadmap.
Raising capital for startups is a very difficult process. It involves using personal savings, convincing a third party to invest in your ideas, and generate substantial business for your startup.
According to Fundera, the average small business requires about $10,000.00 of startup capital. Whether or not this number seems huge or surprisingly small, it is important to note the unique needs of your business.
Fundera notes some surprising statistics about startup fundraising:
- 77% of small businesses rely on personal savings for their initial funding
- 33% of small businesses start out with less than $5,000 in funding
- Only 0.05% of startups raise venture capital
- Startups with two co-founders raise 30% more capital than those with only one founder
A very interesting takeaway from these statistics is that a startup with two founders will raise more capital than one with only one founder.
Startups that have two founders are more likely to find success in many different areas but one of the most important is, of course, funding.
This could be due to the balance and well-roundedness that comes from having more than one decision-maker.
It is extremely important to make an outline and timeline of where you see your startup going and what funding you will need to hit various milestones.
There is no single path that all businesses should take, so it is important to reflect on your individual needs and progress from there. According to m13, there are a few important factors to move your business from seed to Series A.
Seed funding is your first big step forward as a startup. Seed funding happens when you secure a partner or partners that are dedicated to investing in your business.
From here, you can plan the rest of your business journey. To move from seed to Series A, here come steps you could take:
- Create a timeline
- Come up with your pre-fundraising steps
- Approach creating an active fundraising stage
- Finalize the deal – seal your funding
- Assess and use all of your available resources
Again, it is important to realize that not all businesses follow the same path at the same speed.
For reference, most businesses do not move from seed to Series A in under 8 months.
Most companies plan for 9-18 months for this process. That being said, most businesses don’t have an investor network and plan to set the time ranges as follows:
- Preparation: 6-12 months to devise a strategy and build investor contacts
- Investment materials: 1-2 months to create and edit pitch deck
- Process: 2 weeks – 3 months to conduct meetings and informational interviews with potential partners
- Closing: 2 weeks – 3 months to finalize a deal and complete all financial and legal processes with your finalized funding partners.
How to Find Investors on Your Own
The first step to locking in investment is doing thorough research on what kind of investment is out there and what enterprise you most likely fall in.
Finding an investor should be a process that resembles a sales process.
You should start with a large number of potential partners in mind and then through more research and informational interviews, you can begin to narrow in on investors that will most closely fit your startup.
StartupGrind has compiled a list of sites and networks to find potential investors. To make your list, you should be starting training your skills with dozens and then hundreds of potential investors.
Developing a relationship with investors that are interested in your business and verticals is important.
Great places to look for investors are databases like AngelList, Crunchbase, or Foundersuite (we have a deal for our startups), that can connect you to a solid list of investors.
You are able to search keywords related to your business to narrow down the search. Other databases and sites mentioned are LinkedIn, Mattermark, CB Insights, and PitchBook.
Tactics on Linkedin could help you out in setting up meetings with investors. Check out our seminars.
Once you find active investors, you would need to filter out the ones that don’t invest in startups at your stage, and outside of your vertical.
It may take a few conversations to figure out if they will be a good fit and this process will help you narrow down your list significantly.
We asked mentors and experience startup founders tactics and tricks they recommend to first-time startups.
Stephanie Sims, Founder of Finance-Ability told us that developing a strong fundraising strategy is the most important part of attracting funding.
I believe strategy beats tactics every time.
Too few founders develop a fundraising strategy – they just go out and ask for introductions to investors!
Raising capital is simply another type of sale, so you need a clearly identified target client and a coherent story that piques their interest before you start pitching.
Startupgrind agrees with Sims. The most important part of scoring funding is to act as if you are building a sales funnel, seeking out someone to purchase what you are selling.
If you are experienced in sales, you already know that some leads are not actually worthwhile leads at all. Some are a waste of time, and others are out of reach.
You need to be both selective and realistic in your search if you want to be successful. At the same time, you have to realize that the investor you are meeting with will have a lot of questions.
To answer those questions, you must have a strategy, a story, and a compelling reason to assure them that their funding will not go to waste.
Understand the Scope and Nature of Your Business
Understanding when funding is out of reach and what is attainable is an extremely important part of securing a reliable investor.
Michael Garbade, Founder of Ledu Education Ecosystem recommends a related tactic for first-time fundraisers.
Understand the nature of your business. As a founder who is raising money for the first time, I highly recommend that you start with understanding the nature of your business.
You may be a small or medium business owner, but your aim should be on understanding what spectrum you fall under.
Once this is done, there are greater chances of enhancing your scalability and also raising more money. Also, leave some room in between to exit the industry if need be.
Sam Shepler, Founder, and CEO of Testimonial Hero gave us advice that goes even before Garbade’s.
He said that before you even start thinking about funding, you have to make sure your business idea is feasible and feel out if you will be able to get funding.
Our new-age way of raising capital is to get a business idea founded is launching a crowdfunding campaign via platforms such as Indiegogo and Kickstarter.
You can get valuable insight and test your idea on the open market while getting feedback from a wide range of sources that can include angel investors, end-users, and other supporters.
Crowdfunding is a great barometer of how hot or not your business idea is before you decide to launch.
Some ideas can go viral and achieve the funding target within days and then you are good to go. Others may never reach $100 and stay dead in the water.
Crowdfunding is a great way to feel out whether or not your idea is going to be successful. It is also a great way to see what investors are looking for and what they are not, before you spend a great amount of time reaching out to investors.
Josh Simons, CEO and Co-Founder of Vampr Inc. says another mistake that many people make is overvaluing their startup when meeting with investors.
Don’t overvalue your startup, especially if you have zero revenue.
This will only turn off potential investors. Raise only as much as you need and have a conversation with your new investors about how much of the company you are willing to give away in exchange for their startup capital.
Keep in mind you will dilute many more times over the years if your startup is successful, so you don’t want to give too much away either.
Both under and over-valuing your startup while seeking out investors will be detrimental to your success and stability in the long run.
Visible VC believes that the best chance of being a company that successfully creates a huge return for a fund has a compelling market.
Your job as a founder is to make sure that you have thought of all addressable markets and envisioned yourself penetrating the market.
If you are unsure about this aspect of your business, it is reasonable to assume that founders will be too and they may be hesitant in investing in you.
Best Skills for Fundraising
Unfortunately, the work of searching for investors and partners does not stop once you secure that initial funding.
Fundraising and acquiring investors is something that you will need to think about for a long time. Successful fundraising in both the short run and the long run requires skill. Garbade shared some additional thoughts with us about what it takes to be a successful fundraiser:
One of the most effective “skills” for fundraising to have is the professional’s full commitment towards the cause.
Being fully committed shines through your work, and it automatically motivates you to work harder.
The passion involved in tasks that you’re passionate about is different from things you may not be as inclined towards. With such a sense of commitment, there is also a greater chance of inspiring donors and other team members.
If you are truly and genuinely driven to build up your startup, then investors will see your passion and that will be more likely to persuade them into committing to your cause, especially at a very early stage.
Likewise, if you find funders that are passionate about your mission, their funding is likely going to continue and may even increase over time. Passionate investors do not come without passionate founders and therefore it is very important to be truly invested in the mission of your startup.
Shepler believes that communication is one of the most important skills for fundraising.
The best skills to have for fundraising, hands-down, are communication skills.
You need to be a people person in order to persuade others that your new idea or product is excellent and why they should consider funding you. So it’s important to have both interpersonal and sales skills in order to be a great fundraiser in any industry.
It is harder for some people than others to be outgoing and communicative at all times, but the best fundraisers are those who are able to push past any discomfort and really sell their ideas in a personable, approachable way.
Simons agrees with Shepler that communication is one of the most important skills for a startup founder.
Understanding the metrics that matter in your industry and being able to communicate this succinctly to investors [are some of the most important startup skills].
You will probably want to workshop your Q&A skills with other members of your management team (your co-founder, for example) and repeat this over and over so there is no single question that will trip you up.
Simons also recommends pitching your ideas to your family and friends, people you trust, before you go to stranger investors.
This may get you some easy, early funding but at the very least will make you more comfortable and put some confidence in your pitch.
In conclusion, there are many different ways to secure funding and many different kinds of funding to get. The road ahead to funding may look different depending on your business model and what kind of money you have behind your business in the beginning.
To successfully fundraise and get your ideas off the ground, you need to thoroughly research the market you envision penetrating as well as many, many different founders.
Using the funnel model of coming up with an exhaustive and extensive list of potential investors and narrowing down that list with scrutiny is an important step in the fundraising journey.
Utilize all of your resources. Utilize the skills that you yourself possess, but also the skills that those around you possess. Using connections is an extremely important and effective way to achieve funding.