The question of timing for fundraising is an important issue. Indeed, entrepreneurs must anticipate the financial needs of their startup. In order to allow a good development of the startup, they must not find themselves in lack of liquidity.
Several stages of financing needs exist:
When a startup is in the R&D or pre-creation phase
When a startup is in the seed phase
When a startup is in the growth phase
Thus, fundraising is felt at different key moments in the life of a startup. These fundraisings can’t be done without investor documentation. That’s why fundraisers exist: they offer you support in drafting your financial documents.
Advimotion is a financial consulting firm that assists startups and SMEs in obtaining non-dilutive financing and equity fundraising. We also act as advisors in corporate divestiture transactions to best represent the interests of sellers.
We offer strategic consulting and outsourced CFO services to ensure the financial and operational monitoring of your business. Finally, we take care of the drafting of investor documentation : business plan, pitch deck, creation of reporting files and valuation calculations.
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Raising funds must be useful to the startup. We must not forget that raising funds from external investors implies responsibilities of return on investment to entrepreneurs. Thus, three key moments stand out for entrepreneurs who are looking for funds. These moments are: the pre-creation or prototyping phase, the seed phase and finally the growth phase.
Fundraising in the R&D or pre-creation phase of a startup
At this stage, the startup is still in the prototype or ideation phase. The timing of this phase does not facilitate successful fundraising because the company does not yet have performance indicators and enough customers to validate all the criteria on which the forecasts are based, such as the attractiveness of the product or the scalability of the sales cycle. Startups that raise funds at this stage do so either through venture capital funds, non-dilutive public financing such as grants or love money financing, which corresponds to the fact that close friends or family of the company’s managers become shareholders of the company. The vast majority of grants are awarded to technology startups that are in the innovation race.
Raising funds in the seed stage of a startup
During this phase, the startup has little traction in its market and sells its product or service to a few customers. Thus, the turnover is still low and especially, it is not stable and recurring.
The investor then takes a lot of risk by investing in the seed phase and aims to minimize them, which is why presenting the company in a complete and precise way around five criteria is essential.
The investor will look at who the founders are, which is why it is important to present a team of experts who work in cohesion with complementary skills.
Attention will be paid to the product, which must be interesting and provide some value through a credible offer.
Although still small, the investor will pay attention to the number of first customers and market traction, which will allow him to validate the whole business model.
The market study will allow the investor to better understand the company’s scope of action, its potential on the medium/long term to understand the strengths and opportunities it offers and possibly find weaknesses and threats before granting funding.
The ambition of the entrepreneurs will also be reviewed by focusing on past achievements and validating future plans through a complete and structured investor documentation.
However, it is important to have cash in the seed phase to finance marketing, communication and human resources that will allow the company to find its customers and continue its development. In the seed phase, many financing solutions are available: participatory financing, business angels or business angels’ clubs, public financing and seed funds.
Fundraising in the growth phase
In the growth phase, the startup has found its market and its revenues are recurring. Fundraising is useful to finance the growth (marketing, human resources) or the internationalization of the startup. In the growth phase, there are many ways to raise funds. There are corporate venture funds: the capital allocated by investors who will be minority shareholders of the company is provided without guarantee at a key moment in the company’s development. It will contribute to the increase of the company’s equity. We can also mention equity crowdfunding platforms (crowdequity), development capital funds, or public aid. At this stage, fundraising is easier because the startup has positive metrics and therefore the risk of losing money for investors is lower compared to the pre-creation and seed phases.
However, even if raising funds during this stage seems easier, it is important to remember that there are more requests for funding than offers of funding. Investors will naturally turn to the best-positioned projects that are the most differentiated and yield the best return on investment as quickly as possible.
Thus, fundraising takes place throughout the life of the startup and as many times as it needs financing to continue growing. However, depending on its stage of development, the available financing solutions are not the same.
If you need financial documents to raise funds, do not hesitate to contact us.
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