There’s probably nothing more frustrating or even fearsome than having to ask others for their money to make your dream startup come to life. Isn’t it? At one point or another, money-raising will be required, and the key to getting those funds may lie in three simple tips.
But before we tackle those, let’s start with a fundamental question: how do startups get funding?. There is a right place and a right time to do this, and we don’t want you to miss your shot by ignoring the answers to these questions. So, let’s get started.
How Startups Get Funding?
Funding can come from many different sources, including your family and friends. But, when we typically talk about funding rounds, we look at bigger players, like Super Angels and VCs. Knowing which one to aim for depends solely on the stage your startup is in, but let’s get a closer look at the types of funding that you may receive along your entrepreneurial journey.
- Family and Friends: This is the road that many startups take initially on their journey. It’s always easier to start raising money from those who know you (and love you). However, as your startup begins to grow, the need for a more significant influx of money will make this option non-viable anymore (Unless you’re Elon Musk’s nephew, in which case the influx of money coming your way could potentially be endless).
- Crowdfunding Platforms: There are many famous examples of “traditional” crowdfunding models, like Kickstarter. In this platform, people are allowed to pre-purchase goods and services in exchange for some rewards. However, this model is only functional for product-based startups. SaaS startups can use another model called Equity Crowdfunding. In these Equity Crowdfunding platforms (like CrowdCube and Seedrs), individuals can invest small amounts of capital in exchange for a small equity share. Some venues offer a hybrid funding model, which combines expert experience (in the form of VC-lead rounds) with crowd-sourced funding.
- Angel Investors: Angel investors are willing to invest in early-stage startups in exchange for an equity share. To free-up their investment, Angels need some sort of exit (when you sell your company or when you go public). Examples of Miami Angel investors are Rebecca Danta and Maya Baratz.
- Venture Capital Firms: Unlike Angel Investors, VCs don’t use their own money to fund startups; they use a fund provided by the company’s own investors and the fund’s managers. VCs are on the lookout for promising startups, and they offer funds in exchange for equity. To free-up their investment, VCs also need an exit to generate a return for their initial investment. Bear in mind that the bigger the VC’s fund, the larger the sum they will require in return for their investment.
- Accelerators: Accelerators offer crash-courses to fast-track your entrepreneurial journey. These courses typically run over a few months, and their goal is to help you save time, money, and much sweat. At the end of the course, startups are expected to have a proven track record of performance growth and have mastered their pitch to raise money in a full seed round. Accelerators may also offer capital in exchange for equity in your company (usually no more than 10%). An example of an Accelerator is Base Miami.
Tip 1: Know Which Stage Your Startup Is At
There are many rounds of fundraising, and each of them has its particularities and strategies. Having seen many startups on their US expansion journey, we know the importance of first-hand understanding of your startup stage. So, let’s take a look at the different types of rounds and the best practices for each:
- Seed/Angel: This type of round has your team under the spotlight. Investors want to see your vision and drive. Yes, your idea is important too, but you are the one they are interested in learning more about. So, how can you make the best of this round? Make sure you hold several meetings with your angel or early-stage investor. They will want to see a working prototype, your MVP (minimum viable product), and at least some initial traction.
- Series A: Some “Super” Angels may be involved in series A rounds, but you will most commonly be dealing with VCs here, so it’s best to come in prepared. Best practices for this round include having clear and growing evidence of your product-market-fit. VCs will want to see a significant influx of revenue and growth and increase ARPA (average revenue per account). So, it’s essential to show your vision here. Let the VCs know precisely how you and your team plan on using the raise to take you to the growth stage.
- Series B and Beyond: From Series B and beyond, it’s all about growth metrics and numbers. Investors will want to see how you take everything you’ve learned and how you make it work for your growth. Best practices include having several chats with your board, advisors, and potential VCs on how you may take your startup to the next funding round and focusing on achieving those goals.
*There is another round, called the Pre-Seed rounds, which are typically meant to help founders hit one or more milestones before they are ready for the “real” investment rounds. Founders can expect to receive a small investment from friends and family, early-stage angels, or startup accelerators, often below $1 million.
Tip 2: Choose Whom You Pitch To Very Wisely
Before investing in any startups, investors do in-depth research about your business and your team to understand if they are making a smart choice in investing in your startup. You should do the same.
Understanding how investors tick, what they like to see in a startup, and what not will give you a clear advantage to get funding. However, you should go even deeper than that.
When profiling your investors, it is worth noting the following things:
- Geolocalization: Try to find investors within a two-hour flight from your Venture.
- Niche: Find an investor that typically invests (or has in-depth knowledge) in your niche.
- Growth Potential: Investors primarily focus on startups that are already generating revenue and have a strong potential for growth or on those who have a clear competitive advantage and a promising future.
Tip 3: Master Your Pitch Deck
If you only had one chance to convince a potential investor to invest in your company, then you need to make sure that you nail your pitch.
Pitch deck templates can be found all over the internet. However, our suggestion as a go-to-market consulting Agency is that you make yours following the 3S rule: short, simple, and sweet.
There’s no need to write a bible about why your startup deserves funding and how great it is, and you should avoid tech jargon at all costs. The easier your pitch deck is to understand, the better. Keep the length of your deck to a maximum of ten slides.
Make sure you pack a punch in the first three slides (put your best content first) and repeat this strategy with your pitch. Your initial 30 seconds should be the most powerful ones. If you grab your investors’ attention right off the bat, you have higher chances of keeping that attention until you’re done. Otherwise, you might lose their interest halfway through your presentation.
Related Read: How to Dazzle US Investors with a WOW! Statement
Extra Bonus Tip: Ask For Introductions
Any cold outreach sale is more challenging than a hot lead. This is true in marketing and sales, and it’s equally as accurate when fundraising. It’s not enough to do your research and come in with a plan. If you manage to get a referral, you will enter that investment meeting through the Golden gate.
So, time to dust off some connections and cashback on past favors. Think about your network and who can introduce you to the kind of investors you are looking for.
Another great tip is to ask for introductions to the founders of portfolio companies. Since they already are inside the investor’s “trusted circle,” you will have a higher chance of connecting with them with the right foot forward.
Ready To Get Funded? Go Get Them, Tiger!
So, there you have it. Our top 3 tips and best practices secrets to increasing your chances of getting funded by a US investor. Time to put the theory into practice!
