Get Entrepreneurial: 4 Lessons Learned During the Funding Process
As someone who spent many years as an investor, I can tell you it’s actually a great time to think about turning your innovative idea into a reality. There have never been so many methods of raising the capital needed to be successful be it an accelerator program, crowd sourcing, boot strapping, or something else. However, many of you will at some point need to seek funding from an angel investor or group of investors which can be extremely tricky to navigate. The truth is, the funding process can be one of the most complex challenges small business owners and startup founders face when growing their company. Consider the three lessons I’ve learned from my time one the investor side of the table as you meet with investors and build a successful and thriving company.
1. Make accurate and honest financial predictions
Honestly, ongoing financial success doesn’t typically come easy to most companies. If you don’t have a background in finance, its easy to get swept up by the promise million dollar headlines tend to make. My advice is to stay as accurate and honest as possible about the worth of your company when meeting with investors. Remember, this is what they do for a living and they’re going to be incredibly sensitive to anything that feels overblown. It’s much more important to present accurate financial predictions and then be able to demonstrate how you plan to grow and scale in the marketplace gradually. After all, the investors’ ultimate goal is to have a return on their investment and they understand that might not come for some time. Your goal should be to show them how you will achieve that with the money you’re asking for.
2. Don’t get greedy, seek what you need
In addition, to being honest and accurate we might as well talk about not getting greedy. It might seem tempting to ask for more than you actually need during an investor meeting, after all the startup game is volatile and more money might mean more stability. If a smart cooler can raise $10.5 million on Kickstarter, why can’t you ask for a cool million from an investor? However, in my experience securing more money than you need often causes more trouble down the line. This means things like money that gets misused and resourced in the wrong places, you acquire incompatible investors who want a controlling stake in the direction of the company or even pricing your business out of future funding rounds.
3. Prep the management team
Financial savvy is something that should resonate throughout your entire management team. Competition for funding dollars is fierce and bringing an empowered team will set you apart from the numerous other pitches the investors have heard that day. Let your team in on your financial plans for the future, discuss previous successes and failures, and understand how your collective financial knowledge can be leveraged for the meeting. By showing you are the ones who are prepared to successfully navigate the financial hurdles that are bound to pop up, an investor is much more likely to feel confident about taking the risk.
4. Look to the past to solve problems
One thing I don’t see often enough, is today’s startups doing their homework and looking into the history of successful companies in a similar marketplace. You might be surprised to see that some of the biggest companies around began with very modest funding. Mega popular home-sharing service AirBnB is valued at more than $2.5 billion, but it began with $20 thousand in angel investment. Recently, ZipRecruiter began sharing its growth story, from boot strapped lifestyle company to a first round of funding at $63 million. If you’re having challenges, are not sure how to tackle a particular hurdle or the right answer a question you’ve been receiving form investors, there is much to be learned from the history of your predecessors.
Funding can be achieved successfully if you’ve properly prepared. Too often to entrepreneurs get
caught up in the excitement of their ideas that they forget to actually explain how they plan to achieve everything they’ve presented. Keep in mind these lessons learned and make sure you have the financial plan to back your idea during the funding process and you will be successful.
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