Are you really ready to begin a fundraising round for your startup? Before going for it there are certain questions that entrepreneurs must ask before seeking funding.
Who doesn’t want more money for their startup? The media even makes it sound simple and like the go-to strategy for launching or scaling a business today. However, there can be a lot more to it than most realize. It can be far harder to reverse the process. Impossible, unless you can afford to buy your investors out at a multiple that works for them.
Raising money could be exactly what you need to make your vision a reality. Here’s how to make sure it’s the right move for you, and that you are ready to hit the investor circuit.
The Ultimate Guide To Pitch Decks
Questions Entrepreneurs Must Ask Before Seeking Funding
1. Do I Really Want Outside Funding?
Funding isn’t free. $50 million man, navy SEAL, and creator of the TRX fitness brand Randy Hetrick warn other entrepreneurs on the DealMakers Podcast to carefully weigh the financial consequences of taking outside money.
It may not only come with interest and giving up a large share of profits but can put a lot of pressure on your startup to deliver specific results on your investors’ timelines. It means taking on a substantial obligation to those investors, in addition to the company itself and any cofounders, employees, and customers you already have.
Some very successful founders on the DealMakers Podcast are fans of taking as much money as you can get. Even if it means taking money early, while it is cheaper. Others are very cautious about only raising just enough, or even not raising until it is a necessity.
2. How Much Am I Willing to Give Up?
This one is definitely one of the most questions that entrepreneurs must ask before seeking funding. Accepting funding means you are trading a piece of your company and its ownership for money.
How much are you willing to give up? How much control are you willing to give up? Because, when you bring in investors and new board members they have a say in how you run the company.
Perhaps an even better question is, what the return will be on any funds raised. Will the money you receive for giving up 25% of your company in this next round ultimately return you far more over the long run than that 25 % of profits would have put in your pocket? What about once you have given up 50%, 75% or more?
3. What Role Will I Take?
What role will you take during the funding process? What role will you take afterward?
Fundraising is a lot of work. In early fundraising rounds, investor pitches can be very demanding. In later rounds, it can be surviving the due diligence which really demands mastery. obviously the questions that entrepreneurs must ask before seeking funding will vary from financing cycle to financing cycle as the business matures.
Who in your company, or among your expert consultants will take the lead on the fundraising process? Is there someone that may do it better than you? Or will multiple people need to be actively involved in this on a daily basis?
Business experience can be a large factor in getting funded. Some of the entrepreneurs I’ve interviewed have turned to hire new CFOs and CEOs early to help position them to attract more capital and harness experts in building a real business.
Or you may have to be prepared to focus all of your time on this side of the venture, and ensure you have an amazing technical and marketing team to handle all of the product-related side of the business.
4. What Should I Look for in an Investor?
You’re not ready to pitch or even create a pitch deck unless you know the type of investor you really want for your startup. Capital is still plentiful right now. Raising money from angels and VCs is far more about what they can do for you besides the money. The money is just a tool that ties you together and gets them invested in your success.
See How I Can Help You With Your Fundraising Efforts
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