2023-10-11 09:44:07
Fundraising is an important part of your startup journey. While you may be able to boost your growth in the first year, at some point you will need to seek external funding to accelerate your hiring, marketing, and growth.
Whether you’re raising money from venture capitalists, banks, or business angels, it’s important that you get funding on the right terms. You don’t want to give up too much equity, or lock yourself into terms that harm you.
Therefore, don’t jump into fundraising without being prepared. It is important to approach the process strategically and intelligently. And, as an entrepreneur, one of your most important goals should be to take steps to increase your company’s valuation before raising funds.
A higher valuation means you’ll raise more money or retain more capital. But, How do you maximize your valuation? The following five tips will give you an edge over your competition when looking to raise money on better, cheaper terms.
Demonstrate traction
Don’t raise funds too early. It is best to create a so-called minimum viable product (or MVP in startup parlance) to generate some demand and traction in the industry before turning to venture capitalists and other funding sources.
This early traction will give you an evidence base to argue for a higher valuation by demonstrating your potential. If you try to raise funds too early, all you will have is a concept and an idea. And it is very difficult to value a concept.
Instead, you and your potential investors will simply be guessing at the valuation or, worse yet, simply pulling numbers out of the air. The result is that you won’t be in a good position to fight off investors who drive down your valuation.
That said, initial traction doesn’t necessarily have to be sales and finance. It could simply be the number of social media followers your startup has generated within a certain period of time, the size of your launch waitlist, or anything else.
Show your team
At an early stage, investors typically support the team and its ability to get things done. In fact, one of the biggest predictors of a company’s success is the quality and track record of the founding team.
Most investors know that the initial concept you present to them may have to change, pivot and evolve over the next few years. As you scale, you will not only need to make changes in response to a rapidly evolving competitive environment, but also in response to the discovery of new and unexpected opportunities. That’s why many investors say that when it comes to an initial investment, they’re really just backing the team.
However, many startups overlook profiling and raising the profile of their teams during the fundraising cycle. They spend a lot of energy showcasing the company and its products, but then paste the photos and biographies of all the key members of their team on a single slide at the end of their fundraising presentation.
If you’re looking to increase the valuation of your new company, consider investing in your team’s profile and credentials. This could mean investing in an executive thought leadership program, hiring a public relations agency, or anything else.
Point out growth opportunities
When investors back a company, they are investing in the future potential of the new company. For example, although you might be operating in a very narrow niche today, your investors could be investing in your business with an eye to your expansion potential, for example, how you can access new markets, launch allied products, or adapt your product to the needs of customers.
However, too often, many startup founders only focus on what their businesses, products, services, and finances are like. That’s important, of course; You want your presentation to be credible and based on reality.
But you need to devote a significant component of your presentation to a broader, longer-term vision for growth: not just selling your existing product to more of the same type of customers, but instead demonstrating that you’re uniquely positioned to sell to different customers. markets or cross-sell other products and services to your existing customers.
This is important because the multiple you can get for your business will largely depend on potential. If you can show that your business can grow its revenue 10x over the next 12 months or more, you’ll get a higher valuation than if you can simply show a doubling of revenue. Linear growth is not enough. Investors are looking for an exponential rise.
Raise funds when you are strong
Don’t wait until you need the money to fundraise. It’s very easy to put off fundraising when everything is going well. If you don’t need the money today, why go through all the hassle, stress and effort of raising money?
But this is incorrect for two reasons. First of all, if you wait until you need the money, then there needs to be additional pressure to accept a deal regardless of what you’re offered. If you receive an offer from a single VC with a low valuation, you will be forced to accept it. You will have no choice.
Secondly, if you have waited until your financial situation is unstable or your growth has slowed, then it will be much more difficult to present yourself as a strong, high-growth, disruptive startup. You risk ruining the entire narrative about the strength of your business and the potential returns you will offer investors. The result? A lower rating.
Hit the market at the right time
Lastly, the latter is a little more difficult to control, but one of the biggest determinants of achieving a higher valuation is market timing. It’s no secret that markets go up and down. Sometimes markets benefit from so-called “irrational exuberance”, where investors are optimistic, positive and willing to pay higher valuations. Other times the markets may be depressed.
Right now we are going through a relatively depressed market, but that is not entirely the case. In particular, some areas of technology, such as Artificial Intelligence, are seeing strong valuations, while others, such as plant-based meat startups, are starting to come off the boil.
If your industry is hot right now and your competitors are raising a lot of capital, then this is a sign that you should do the same. Don’t put it off because a market can change in the blink of an eye. Take advantage of a bull market before it’s too late.
Raising funding can seem like a real hassle and distraction for many startups. But it is often an essential ingredient for growing a large, successful company. While increasing your company’s valuation may not always be within your control, if you follow some of the tips above, you will be in a better position than many other companies.
#Venture #Capital #Fundraising #Ways #Increase #Startup #Valuation