Some startups jump headlong into their idea without asking the question “when to raise money ?”. This question should be asked beforehand, before starting a project. Anticipation is essential because it allows you to avoid a possible lack of cash-flow and thus, it can contribute to the good development of the company. This question also allows to have a global view on the different types of financing available according to the maturity stage of the startup. In this article, Advimotion describes the 3 main moments when it is interesting for a startup to raise funds.
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When a startup is in R&D or pre-creation phase
When a startup is in the pre-creation phase, it is possible to raise funds. Indeed, if its product/service is innovative and/or technological, it certainly needs to do research and development. In this case, the startup can turn to public funding.
These possibilities are defined as non-dilutive public funding.
In the case of a non-technological product, however, there are fewer financing possibilities, as the project has not yet been realized and completed by the company. The company needs concrete information to reassure investors, such as performance indicators or customers who approve the usefulness and attractiveness of the product. Resorting to non-dilutive public financing is then strongly recommended.
In addition, the startup can also turn to “love money”, money that is granted by its relatives.
When a startup is in the seed phase
In the seed stage, the team has a project and a credible business plan. The traction on its market is not yet strong, as well as the turnover which is still weak and not stable but the marketing has already started with some results. During this stage, the startup can turn to business angels, seed funds or crowdfunding platforms.
In order to put all the chances on its side, the company will have to reassure the investor who takes risks by investing during this phase. To do so, it is necessary for the company to present the projects under several aspects.
It is important to explain who the people behind the project are. Are they experts in their field, do they work together ? Are their skills complementary ? What are their ambitions and achievements ?
It is very reassuring to present the product in a complete way through its offer, its functionalities and the solutions it brings in response to the problem.
Proving the usefulness of the product and its validation by the market is interesting. The startup must show that it already has customers, which validates the business model.
The market study will lead the investor to think. The entrepreneur will evoke the possible evolution of the company on the medium/long term and will specify which are its strong points as well as the opportunities to be seized through this project. The investor will be able to reflect on what can threaten the business and identify its potential weaknesses.
The project leaders should also demonstrate their ambition by presenting their achievements, the projects that are close to their heart and that they wish to realize in the near future.
Gathering as much information as possible about the project in order to present it in an exhaustive way will undoubtedly reassure the investor in his investment choices.
Advimotion recommends you to keep some cash during the seed phase in order not to hinder the development of the activity and to be able to find customers more easily.
Raising money when a startup has positive metrics
Positive metrics mean that the startup has traction in the market, which can be seen in the sales figures that are gradually increasing on a monthly basis. It has a business process that works and therefore a significant growth potential. The investor takes less risk by investing in the startup at this period and the investment solutions available to startups in this phase are numerous: Startups at this stage will turn to venture capital funds, development capital funds, corporate ventures, equity crowdfunding platforms or public aid. All external investors are capable of investing large sums of money for the development of the startup.
However, even if raising funds in this phase seems at first sight, many elements should not be neglected. Among these elements, a well-practiced and well explained presentation remains mandatory to maximize the chances of a successful fundraising. This allows you to be listed among the best files, the most understandable with the best potential and offering the best return on investment. From then on, your project will be perceived as more credible, which will allow you to differentiate yourself from others because the demand for financing is much greater than the supply.
Thus, you will have understood, there are three important times to ask yourself this question. Indeed, a simple answer would be: at startup, at bootstrapping and at takeoff.
If you need support or advice in your fundraising, do not hesitate to contact Advimotion or to read us on Medium.
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