How to attract investment for your startup?

All startups dream big. However, only a few survive.

Many founders are often puzzled by the same questions:

• At what stage should I fundraise?

• How do I attract investors for a startup?

• What fundraising platform should I use?

Here are some tips that will make the process of raising money for your startup a lot easier. Just learn them and implement!

1. Think about funding sources

Remember that preparing a financing scheme is crucial. It will help to choose funding sources, plan startup implementation, and ensure that funds are sufficient.

Funding sources may be the personal capital of startup founders and funds from external sources:

• bank credits

• loans

• grants

• FFF group—Family, Friends, Fools—which are commonly used at the idea stage

Venture capital investors are attracted to the company's and profit growth, not product development. To raise capital, you need to create a prototype, presentation, team, and plan for further action.

2. Develop a prototype/MVP

A prototype or an MVP t is a minimum requirement for raising capital, even at a Pre-Seed Stage. The best way to demonstrate the proposed value is to show an idea in action and share plans for further development. This will help you gain investors’ confidence.

3. Make a presentation

A presentation should showcase your startup idea, explain its advantages, and project revenue. You must provide the following information on slides:

• Analysis of the target audience, demand, competitors

• Business development plan

• Project plans and perspectives

• Your team

• Benefits for the investor

Remember the principle of smart-money: besides money, an investor can receive other benefits. Say, open access to new sales channels, knowledge, or competencies.

4. Gather a professional team

Insufficient team is the third most common reason for startup failure.

When searching for suitable candidates, pay attention to such aspects:

• experience in similar projects

• qualification level

• achievement list

• specialized education

• personal characteristics

Finding qualified workers has never been an easy task, however, the success of the entire enterprise directly depends on it.

5. Determine relevant investors

When choosing a public or private source of financing, you must identify potential investors, their tasks, and goals.

Here are a few check questions:

• Does the investor’s profile match yours?

• What amounts of funding were contributed previously?

• What projects does the investor have in their portfolio?

• Who are decision-makers?

• How often are investments made?

• At what stages does this investor offer support: Seed, Pre-Seed, Series A, etc.?

Use investor websites or platforms such as AngelList and Crunchbase to answer these questions.

As a result, you will have a ready-made list of investors and thus you will not waste your time on unnecessary and unproductive meetings.

6. Define a startup development stage

The rounds of attracting venture capital financing differ in the business size and investment amount but the basic requirements are the same. As the startup grows, the sources of funding and company valuation change. See how it happens from a product idea to Pre-Seed, Seed, and Series A investment rounds.

To raise capital for your startup, determine the company’s development stage to understand what kind of investment you can apply for.

7. Hit a breakeven point

Simply put, do not ask for money when your project is going down. That scares a lot!

From the opposite when raising capital at the breakeven point, you get these benefits:

• Potential investors are more confident that your business won’t fail

• The investor won’t be able to dictate the terms and request a larger share of your stock as you’ve already paid investments off, and your capitalization is growing every day

If it’s impossible to break even without funds, calculate the required amount to reach this point and only raise the remaining amount.

8. Too much is never enough

Too large of an investment, especially early in development, may adversely affect the future of your company. When a startup receives enough funds to operate for 3-4 years, the team often relaxes and don’t think of the future much.

Start with raising a small amount of investment, sufficient for 3-4 months. This will motivate the team to communicate with users, improve and promote the product, generate profit, and take other necessary actions.

9. Do not give investors a share of more than 50%

There is a simple rule: the founders’ ownership must not be less than 50%.

Otherwise, it will lead to the following consequences:

• difficult to raise funds

• no company’s growth

• no motivation to scale and improve

The bigger the share of investors is, the more control over business and decisions they have.

To avoid this situation it’s better to create a prototype or product at your own expense. Try not to attract a third-party investor at this stage and don’t give a large (over 20-30%) sharepoint at an early stage.

The article was prepared on the basis of a study by the YSBM Group, which analyzed the reasons for the success and failure of 50 different startups. Read the full version here.

Serial entrepreneur with over the 7 years of experience in providing high-quality software engineers for web and mobile projects.