2 min read Finding Funding: When and How Your Startup Should Look for Investors.
If your startup is beginning to gain traction in your market, yet you feel held back by lack of capital, you may be wondering if it is time to start your first fundraise campaign. In today’s article, we will talk about how to gauge whether or not you are ready to source funding for your organization, and if so, where to look for it.
Are You Fundable Yet?
I talk with entrepreneurs every day about their fundraise. The most common question I am asked from those running early-stage startups is: “Am I fundable?”.
My initial response is always to find out whether or not they have a growth story.
For starters, are things clicking forward on sales, team, and product development?
If you can answer those questions with substance, then you are in the game to consider funding. It doesn’t matter where you are on the journey; you just need to show you are making consistent and meaningful progress.
What’s Your Trigger?
When launching your startup, look for a trigger that indicates when to start your fundraise campaign.
Common triggers include:
- Closing a lighthouse customer account or achieving a revenue target
- Signing up a new team member or advisor
- Finishing a beta version of your software or an MVP version of your product
- Closing funding from a lead investor
In short, investors look at sales, team, product, and fundraise as the four core areas for progress.
When you achieve a milestone in one or more of these areas, it can be considered a trigger to consider launching a fundraise campaign.
Remember that when approaching an investor, you should have a milestone completed AND a milestone to accomplish.
Where to Look for Funding
I’m often asked where startups should look for funding.
Luckily, there are many sources. First, start with your family and friends. These are the people who already know you and believe in you. Second, expand the circle to include current and previous coworkers.
If accelerators are appropriate for your deal, then consider those not only in your geographical area but also in your sector. Most accelerators take companies from across the country. Many are now offering funding of $150K or more.
Third, look for a local network of angel investors or family office investors in your area. These are high-net-worth individuals who have organized their startup investments into a formal process.
Finally, you can approach venture capital. This option is only applicable if you have a deal that fits the VC funding model, which looks for a 10X return, scalable business model, healthy growth, and an experienced team.
It’s best to start with those you know and use their funding to show support and momentum to those further out in your network.
There are tens of thousands of investors in the startup world today. The key is to gain an introduction, make a pitch, and then follow up to close.
How Long Will It Take to Raise Funding?
I’m often asked how long it will take to raise a round of funding.
It will generally take you one calendar year for every million dollars you are raising if you are working on it full-time. If you are only working towards your fundraising goals part-time, then it will take you longer.
You’ll need approximately two months to prepare for the raise. This preparation phase includes preparing the company, the investor documents, and the initial investor list.
It takes another 2-3 months to engage investors and bring them up to speed on your deal. They’ll want to monitor the startup for a few months to see the traction in motion.
Finally, it takes about a month to close. After you close those investors, you’ll need to find another round of investors and repeat the process.
For a million-dollar raise, you’ll need to do repeat this process three times on average.
Some companies don’t need all of their funding in one go. Companies based on recurring revenue have the option of growing incrementally and can raise funding incrementally as well.
Read more in the TEN Capital eGuide: https://www.startupfundingespresso.com/running-a-fundraise-campaign/
Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: firstname.lastname@example.org