7 Smart Ways to Approach Startup Funding

This is part eight of my big ol’ nine-part series, exploring every imaginable aspect of startup funding. From funding rounds to valuation methodologies, get ready for a complete crash-course in funding.

Starting a business is inherently risky, and there are serious risks associated with raising investment.

However, you’re an entrepreneur — the type of person that starts a business when 90% are destined to fail. Armed with a suitable warning, you’ll be able to side-step the risks we’ve covered, and make funding work for you.

But risks aside, there are good ways to raise funding, and there are great ways. To get the most out of every funding round, it’s important to approach your investors with a game plan, to pre-empt their expectations and raise investment in the best way possible.

It’s easy to get capital when you don’t need it; when growth is ramping up and revenue is turning from a trickle into a torrent. But leave it too late, and try to raise capital when you’re relying on it for continued growth, and you’ll have a much harder time convincing investors.

Securing investment is usually a long, slow process.

Investment should never be a goal in its own right. If that sounds trite, it shouldn’t: early company valuations are largely driven by the amount you raise, so the more money you secure, the more valuable your company appears.

Over-raising also makes it harder to raise subsequent rounds. Any investor wants to see the value of your company increase between rounds, but if you’ve inflated your valuation from the get-go, you’ve made it much harder to justify your next stratospheric valuation, and the next.

Due diligence is a necessary evil of the startup funding process, but that doesn’t mean you should bury your head and passively endure it.

Most investors will seek out similar types of information, so you can ease the process by preparing data in several core fields:

It’s hard to find great investors: in DocSend’s study, their participants reached out to an average of 20–30 good-fit investors before closing their round.

But the laborious process of finding investors doesn’t mean you should settle for just anyone.

Your investors will be involved in your business for the long-haul. Their ideas and willingness to contribute will shape the direction of your startup in ways you can’t even imagine — and as your company grows, their support grows more and more important.

With each additional round, you increase the number of people vying for control, so the more investors you have aligned with your vision, the better.

Ethos and attitude aside, it’s also essential to dig into the mechanics of any investor’s fund.

Different types of fund require different sizes of exit to generate a suitable return, and their needs will have a direct impact on the direction they encourage your business to go.

If you work with a smaller fund, a more “modest” exit will be acceptable, but partnering with the biggest funds can seriously up the pressure to hit vaunted unicorn status.

Finally, even if you survive the meetings, pitches, scepticism, scrutiny and final due diligence, don’t assume that the deal is done.

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