Many entrepreneurs have excellent business ideas, but have never raised capital before from investors. After raising more than $9 million in capital in my entrepreneurial journey, here are some of my biggest tips for startup fundraising.
What is your social mission?
Many investors will be more interested in your startup if you do not only focus on your plan to generate a profit, but if you also tell them what your social mission is. Many social impact investors exist who want to deploy their capital into businesses that are having a positive social impact. My startup is also a public benefit corporation which means that we are for profit, but we also write our social mission into our bylaws. In your first meeting with an investor, focus on explaining the problem you are solving and how it will improve society. If they believe in your mission, then they will be more excited about supporting you.
Engage your investors as advisors
Many entrepreneurs make the mistake of only looking at investors as a source of capital, but this is a mistake. I have chosen to engage all of my investors as advisors and I have created an online discussion forum where they can give input to me on a regular basis. Investors do not want to just write a check and walk away in many cases. They will be more excited about investing if they feel they are joining your team and they may even make helpful introductions for you. There is a saying in Silicon Valley which is that, “if you ask for money, you’ll get advice and if you ask for advice, you’ll get money.”
Set a minimum investment of $25K-$50K
If this is your first round of financing, consider setting a minimum investment of $25K-50K. Some entrepreneurs make the mistake of accepting $5-10K investments and this will significantly slow down your fundraising process. By setting a minimum investment, you are going to be able to raise capital faster and only attract investors who are serious about your startup!
Strive to maintain voting control
For our startup, we have set up a dual class stock structure in which the founding management team has full voting control of the company and the investors have an economic interest. The benefit of this model in the beginning is that it allows your team to focus on executing rather than playing shareholder politics. Many of the most successful startups in the world such as Facebook and Google had this structure in their early days. You should still be democratic and involve your investors on your board because they can be a valuable source of input and feedback. However, this voting structure will allow you to focus on executing your vision.
Hire accountants early
I recommend hiring a certified public accountants from the first day you have an investor or cash in the business. Your accountants can prepare for you compilated financial statements which you can share with potential investors. This will make you look more professional and will enable you to provide investors with professional financial statements.
Create an investor power point
It is ideal if you can create an investor presentation or pitch deck to share with potential investors that cover slides such as the problem you’re solving, the product or service you have created, the business model and how you generate revenue, your customer acquisition strategy, who is on your team, the total addressable market, your fundraising history, financial projections, and any other key information you think is relevant.
SEC and Blue Sky Filings
Make sure you file a Form D with the SEC and if you are advertising your investment publicly, then consider using regulation 506(c) which allows you to advertise your investment and raise capital from an accredited investor. It is also important to understand that in addition to your federal Form D filing, each state has blue Sky filing requirements which require you to file in each state you have raised capital in. It is best to consult a securities attorney about the details of these filings because if you do not do them it could make raising capital in the future difficulty.
All Money is not green
It is important to understand that not all money is green. In other words, you should not accept an investment from anyone willing to write you a check. Interview your potential investors and make sure your goals are aligned. There’s nothing wrong with turning down money from an investor if you don’t think it’s a good fit.
Treat your investors as partners
Treat your investors as more than a source of capital and they will go above and beyond to help you.