The Dos and Don’ts of Raising Capital From Investors

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Nearly a decade ago, we saw that less than one percent of startups were able to successfully secure venture capital financing. We are moving forward to 2022 and the landscape has changed drastically. While there are more startups than ever before, there is also more capital available and pending deployment. At the same time, the vast majority of companies, surprisingly, still have difficulty raising capital. There is still fierce competition. And discovering and communicating effectively the problem you are solving to consumers and creating value for investors is not always an easy task.

While there is no silver bullet to make sure you receive a yes and a term sheet from each investor during your submission and due diligence process, here are some things to do and not do that can help. to increase your chances of finding the right investment. Partner.

Both to raise capital

Involve people on your team in the fundraising process. A founder who tries to answer all the questions on his own can raise red flags for investors. VCs seek to work with people who have the power to lead, take advantage of the experience around them, and surround themselves with experts. While we don’t expect a founder to know everything, we do expect founders to know how to leverage teams, advisors, consultants, and even investors to fill in the gaps. Hearing a founder say, “Here’s the short answer, but let me call you with our chief operating officer to do it,” builds confidence and trust.

Related: You can’t get VC funding for your startup. Now what?

Admit where you see weaknesses. It is only a sign of strength to be able to identify areas for improvement in your team or business. That said, demonstrating a commitment to addressing these weaknesses by looking for or identifying partners who can support areas where you may fall short or not be as strong as others is a sign that you have what it takes to lead the business at every turn. stage of its growth.

Start the conversation early.

Even if you think your business is too early for a specific investor, it’s never too early to know. This may even work in your favor, as funds evolve their strategies and seek to deploy capital in new stages, through new structures and through new verticals.

Ask your potential investor questions.

Ask each investor you talk to about their investment philosophy. Not only does it show that you are doing your homework, but it shows that you care more about capital. Many better brands for you can attribute their success to the ability to leverage the resources and experience of their investors in all aspects of business growth, from hiring and operations to marketing and process. sales.

Related: These 4 Essential Pitch-Deck Elements Can Help You Achieve Your Life-Changing Meeting

What not to do to raise capital

Don’t let valuation get in the way.

In the early stages, assessment should rarely be part of the conversation. It is good to have a low rating when you are just starting out. You will grow in the valuation you sign up for when the time is right. While we’re seeing mega-rounds for companies with less than $ 5 million in sales, it’s never a good idea to grab a bigger amount of money than you really need. A $ 10 million round of funding is unnecessary for a small business, especially one in the early stages. Starting too high could also mean that you have to take a step back. This is worse than taking small steps one at a time.

Do not present from a slide platform in an introductory investor call.

Participate in a conversation first. Take this important first step to find out your potential investor and vice versa. Founders who go straight to their pitch deck on the first call often leave me wondering if they’re even interested in getting to know me, our background, and how we can help them. They spend all their time talking about themselves and their company. Instead, it would be better if they could open the discussion to a two-way dialogue from the outset.

Related: How to Make the Most of Fundraising in 2022

Don’t go too wide.

Instead, focus on going deep. That means being clear and focused on your growth philosophy. Direct selling demonstration is much more important with what you are currently bringing to the market. Start with a brand, a product category, and a target consumer until you have significant traction (and enough capital) to expand into new categories and new target markets.

Don’t start a business with the idea of ​​selling it in a few years.

Instead, be more purpose-oriented. Ask yourself, why do I want to do this? If the answer is “Because I want to leave in a few years”, then there is not enough motivation to succeed. When you come across potential investors, they will check it out. VCs tend to invest in founders who are not afraid of the long term. Your focus should simply be on achieving meaningful and sustainable traction, improving the lives of your consumers, and therefore generating success naturally for yourself as well as your employees and investors.

Marcel Bens is a managing partner and COO of Emil Capital Partners (ECP), a start-up investment firm focused on Better-for-You consumer goods and services companies.

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