In this post, we will be covering the things required before successfully raising equity funds from investors. The following points need to be covered to have successful fund-raising:
Passion & Commitment
Let’s understand funding, every investor wants to see the founder(s) passion and commitment towards building a scalable and growing company. If there is a lack of passion and commitment towards your idea. Then how can any person be trusted to invest money in it?
Uniqueness & Competitive Advantage
How unique is the idea or the process and what is your competitive advantage over the others? These questions are always arguable. For example, people can say Ola didn’t have any uniqueness or competitive advantage over Uber or Meru. Yes, they had firstly, they were the fully online cab service provider compared to Meru which has either call centre-based or Meru stand-based booking. Secondly, Ola had no assets as Meru; third, Ola was wallet recharge and cash payment option based rather than only credit card as was the case for Uber. Sometimes uniqueness has to be in the process and competitive to the ease for the customer or consumer.
There should be a uniqueness and competitive advantage over the team because without it it is not possible to grow the idea
Market Potential & Growth Opportunity
If above all the points are perfect but the market for the idea is either small then there cannot be any growth opportunity to scale the idea and create a sustainable model. Now every founder(s) has to understand that the idea will grow only if there is a market i.e. either customer or consumer and the market has the potential to accept the idea.
Business Plan
What is a business plan? A formal document containing goals, how to achieve the goals, the duration to achieve the set goals and things required to achieve the goals. A business plan is required for both debt and equity financing, difference in debt is that there is a fixed format required by the banks while in equity it should be crisp and clear. Major points to be covered in the plan:
- Market Analysis – research on the industry, market and competitors
- Service or Product – what are the offerings
- Marketing and sales – how will you market the business and sales strategy
- Funding request – how much money will be needed for the next 3 to 5 years
- Financial projections – revenue project and expenses
- Team – who is taking care of what and their experience or expertise
Financial Model
A business plan is incomplete without a strong financial model describing the initial fund required for start, sources of revenue, human resources cost, operating expenses like office space, servers, electricity, transportation, consulting, etc., research & development, marketing and sales expenses, taxes, profit or loss and cash surplus. This process will help to understand the funds required and how much to be raised initially and in the due process.
Business Valuation
Once we have created the projected financial model, we know how much money is required and we can value our business based on the Discounted Cash Flow (DCF) method. Hence, will be able to draft the expected equity required to be dissolved to raise the required funds.
This will also help investors to know how much the return is in the idea and this has to be kept in mind investors are not funding for charity but rather expecting some return.
Pitchdeck
Why do we require a pitchdeck? This question is very common among the initial startup. First and foremost, the reason is the investor has to analyse many ideas in a day. So, this is like a brochure of your idea where a detailed presentation about the startup has been described. This should cover the following points:
- Company Name & Contact details (Logo and website if ready)
- Team
- What issues are being addressed?
- Idea overview
- Market Analysis and Competitors
- Business model
- Funds Requirement
- Equity structure
- Exit options
Due Diligence
Any investor will do a thorough due diligence of the startup before investing. The major check is done for past financial decisions and about the team credentials and background checks. This is done to ensure that the startup’s claim regarding the idea is verified and has the opportunity as stated in the presentation
Conclusions
Even if you have done all the above points current then also investors may not be interested in your idea. Therefore, everyone has to understand that an idea has to be strong enough to grow in the market and potential to generate revenue from the idea. We recommend every entrepreneur validate the idea through soft due diligence and present their idea to investors in a crisp and clear format.
If you require any support with your fundraising please feel free to connect with us.