Here’s the fundraising roadmap early-stage startup founders must keep in mind

Despite the economic slowdown across the globe and COVID-19 induced challenges attached to fundraising, the Indian startup ecosystem has witnessed numerous startups being added to the coveted $1 billion valuation in 2021. Some of these startups, which have emerged as ground-breaking businesses, have showcased an exemplary ability to overcome crises and build thriving and successful ventures. 

Startups are all about reaching two milestones: a product/market fit and creating a profitable and scalable growth model. Fundraising depends on various factors such as the right initial founding team in place, onboarding industry experts such as advisors, developing a working prototype, and testing the product with an adequate sample of users to demonstrate good traction. 

Here are some useful tips on fundraising for early-stage startup founders, especially first-time fundraisers, to guide them through the process.

1. Proactive self-funding

It is important to invest your own funds in the business at the outset. Self-funding, also known as bootstrapping, helps you develop business sense and manage expenses in the long term. Withdraw a sum from the nest egg you may have built yourself over the course of your work life, or borrow help from family and friends.

Investing your own money also demonstrates your dedication to the company, and will assist you in attracting potential investment. Many successful startups began operating their businesses through self-funding, without the assistance of external investors, and managed to tide over until achieving a substantive commercial growth when raising funding for little equity through investors which seemed like a reasonable bargain to go for.

2. Timing is everything

When the timing for fundraising is right and your company is doing well, it will give you a better access to potential investors.

If you approach investors too early or too late, you may end up with counterintuitive results. If you try to raise funds when you’re not ready, you are bound to louse up your conversations and, in turn, your chances with investors.

As a result, the growth of your startup will lose momentum, and you will be both physically and mentally drained. Moreover, if your company is doing well, you’ll have more demand for your round and be able to fundraise at a higher valuation, own more of the company, and have more control over the terms.

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3. Planning is the key

It takes about a few months to draw up term sheets (documents listing terms of investment and collateral) and approach potential investors. If a startup needs funding in six months, the founders should have a business plan in place already to initiate communication with investors on an immediate basis. 

It’s essential to demonstrate your passion and commitment for the venture, and clearly communicate your ideas while showcasing the solid market research you may have conducted. This research should be clustered around your business plan and should cover important topics like problem detection, troubleshooting, business model, market size etc.

4. Step up your game with incubators and accelerators

Incubators and accelerators offer entrepreneurial expertise and mentorship to shepherd your startup in the right direction, evaluating the venture through lenses of sustainability and scalability. Association with these ecosystems of business-minded individuals increases the probability of startups getting funded.

You will also likely make good connections with mentors, investors, and other fellow startups through the incubators and accelerators you tie up with. These programmes normally run for three to eight months, and offer work space, networking opportunities, education, mentorship, investment readiness, as well as the requisite financial and legal advice. 

5. Angel investment - a Midas touch

Angel investments are tied to high net-worth individuals who are experienced business people investing in novel but inspirational entrepreneurial concepts. Their investments help committed and promising individuals hoping to build business startups out of those concepts and deliver a good return on investment. They invest in fledgling startups in exchange for equity (usually 10-30 percent) or convertible debt.

Angel investors are often organised in networks but you can also find them through your personal and professional connections from startup meetups, technology conferences, competitions, and incubators and accelerators. 

6. Networking for successful partnerships

Strategic networking goes a long way toward making your startup’s fundraising initiatives a howling success. You need to find well-connected professionals and platforms of incubators and accelerators who can hook you up with the right investors. Suffice to say, your network is equal to your net worth.

A solid fundraising strategy will greatly impact the success of your startup. It could render your brand more attractive to current and future investors, as well as buyers for M&A.

Whatever type of financing you choose for yourself, make sure you execute your plans for ‘return on investments’ well. Bear in mind that funding is no substitute for hard work. Even if you are able to raise substantial funds and hire employees, you will still need to lead the way for your company’s operations to be able to closely track progress of your startup in every phase.