There comes a time in every founder’s life that you ask yourself that one crucial question - ‘can my business be successful without funding?’. For those that answer no, there’s usually a short flash of something resembling both excitement and panic, followed by an immediate follow up question - ‘...so when should I start pitching?’.
Getting the answer to this second question correct is crucial to the success of your business. Start putting yourself out there too early and you’ll damage the reputation of your company. Acquire funding too late and your business might already be falling apart at the seams.
So, what does it mean for your business to be in fundraising shape?
This week, we were able to take advantage of a rare opportunity and get the perspective of our investment partners over at CommonRoom Ventures. We asked them a simple question; "what does an investment-ready business look like to you?".
"A clearly defined gap in the market"
We've spoken a lot about market gaps before, but the emphasis here is on clarity. Can you empirically demonstrate a market need and show legitimate growth potential?
"A clear plan to achieve the operational milestones that funds will be used for...show clarity on KPIs"
Transparency on both your key performance indicators and the operational steps you plan to take to achieve them is essential for building trust with investors. They need to know you have a plan, and they need to be able to use their experience to assess it for potential flaws.
"A track record of positive momentum for the business"
It's one thing to identify a specific need, but quite another to prove it exists by making significant sales. If your product isn't yet market-ready, there are still things you can do to show positive momentum - getting an MVP in the hands of testers or making a significant PR impact could be a good start.
"A dynamic financial model in place to show the robustness of the business"
Investors need to know that you're good with managing capital. This goes to demonstrating both your detailed understanding of the variables that impact the business, as well as the financial flexibility you’ll have in the future if, and when, the economics don’t play out as intended.. Showing a plan that you've delivered as budgeted in the past can also be a good way of proving their money will have a better chance to reap positive returns.
"Management has identified the major risk factors and have mitigated these as much as possible, putting contingency plans in place"
Risks can include everything from competing products in the market to financial crises and asteroids from outer space. The trick is in identifying which risks are most likely to actually happen and making sure you have demonstrably sought to minimise them with a clear plan in place for if/when they do. Things can and do go wrong in business every day, so investors need to know that you're prepared for the worst.
This list reads like a straightforward checklist for your business; there's no real mystery in what investors want from you. All of the above are simple ideas, they just aren't always easy to achieve. You'll need to spend significant amounts of time - sometimes weeks - on each of these areas in order to prove that your business is the best place for someone to invest their money.
And never forget, that's exactly what you're doing. At the end of the day, that's what entrepreneurship and leadership are really all about - having the guts to take responsibility for somebody else's financial well-being. Good luck.
Next week, we'll be taking a look at the significant pitfalls that startups tend to fall into when seeking funding. Stay tuned!