Why do we have the notion that capital raising is a challenging task?
Of course, it is challenging but what makes it so? There must be certain area that the entrepreneurs often fail to understand and that’s where they get stuck up even after months of preparation. No worries, today we will discuss a few simple tips that will go a long way in helping the entrepreneurs to raise capital successfully.
So all you entrepreneurs out there, read carefully the below mentioned tips and try to analyze what all went wrong during your last fund raising campaign. Often, a minor negligence can put you into trouble, so make sure this time you don’t disappoint the investors. And, if it is the first time you are raising capital, you are lucky enough.
Tips For Raising Capital
Understand Your Business Well
Understanding your business is the most crucial task. Until and unless you know your business well, you cannot demonstrate anything in front of the investors. Despite knowing your business, there are chances that you may fail to articulate everything in front of the investors. Now, these professional guys will only invest when you are able to show them your operations, objectives and vision in complete facts in figures. For this, first you have to determine the value of your startup. Business valuation is a great way to determine the worth of your company based on which you can ask for the capital.
Be Realistic About When And How Much Money You Need
Starting a new business does not necessarily mean that you have to jump into fund-raising right from the seed-stage. Knowing when exactly you need to raise capital is very important. It is best if you fund the business from your personal savings, at least 10 to 25%. It will help you gain the investors’ trust and convince them more easily for the investment when you really need it.
Also, asking unrealistic amount from the investors is also not going to help you either. You may think that asking less than what is required will make you appear more confident but the fact is, you should determine your borrowing needs keeping in mind the worst possible time and not the best. Raising less capital may lead your business to collapse during extreme crisis. It is absolutely ok to ask more if it is realistic.
Get Everything Ready
I wish every entrepreneur knew how critical the preparation is for equity capital raising. You have to make sure right from the beginning that you are equipped with all that is needed to raise capital successfully. From having a unique business plan targeting a sizable market to getting your first pitch ready, everything will together determine whether you will be able to satisfy the investors or not. Your first pitch should be aimed at raising curiosity in the investors about your business. It is very important to get them hooked and once you do it, you know you have achieved 50% of it.
Show Customer Validation And Traction
Where there are customers, investors will automatically come in, so before you approach the investors try to gather a group of customers who believe that your product or service has a genuine requirement in the market and currently there is no other alternative to it. If you can gather a group of beta customers for demonstrating customer validation, your investors are definitely going to give it a thought.
Hire A Trusted Venture Lawyer
The terms and conditions in the VC industry keep changing and a venture lawyer can only provide you with the best guidance to deal with the situation. As an entrepreneur, you may need to raise capital two or three times in your life, so having a reliable lawyer by your side will help you get a good deal.
Find The Right Investor
Make sure you do not chase the wrong investor while looking for one. Wrong investors are those who are interested in an industry totally different from yours. If yours is a tech startup and you are chasing an investor who is interested in the energy sector, you are simply wasting your time. Each second is valuable for you so spend it wisely.
From all other types of capital raising methods, venture capital raising is the toughest and the most crucial one. While it is the only source that can offer you the maximum amount of money, it is also true that convincing a VC can be the hardest exam you have ever appeared. I hope you find the above points valuable and helpful. For more tips for raising capital, you can visit http://mergeralpha.com/.