Understanding The Essentials Of Fundraising

Sandeep Aneja, Founder & Managing Director, Kaizen PE With over 17 years of experience that encapsulates around consulting, operations, leadership and investment management, Sandeep holds expertise in providing strategic planning and oversees the firm's overall investment activities and portfolio management

As a founder of your startup you probably spend more than half your time imagining and enacting things that get you closer to your first fundraise. You often prioritize meetings with investors over internal meetings and may even prioritize meetings with investors over meetings with potential customers or partners. Sometimes if you are a good storyteller, you can engage several investors in a series of meetings but often these meetings all seem to lead to an impasse and you hit the proverbial “investor blackhole” leaving you wondering what went wrong.

Only if there was a way of predicting early on in your journey whether you were headed towards the dreaded, yet omnipresent investor blackhole. There are several signs that will indicate to you very quickly whether your fundraising is likely to be successful or not. I will divide these signs into two broad categories: Internal and External.

Before reading these signals keep in mind that for most of the entrepreneurs such articles can leave a bad after-taste as they do not talk of what needs to be done to get funding but focus on diagnosing a problem through subjective symptoms. It is like having to self diagnose the cause of an annoying pain using search results from a popular search engine ­ all the results seem relevant and it can lead to unnecessary panic. So, I would suggest that after reading this article if you truly feel there are areas where you can focus to overcome funding roadblocks then do so. Focus on that. Talk to experienced mentors and work on acting on critical items. Each startup comes with many lessons. Owning those lessons will help you put any such article in the right context.

Internal Signals: When a body is functioning well, all organs work together in an orchestra-like fashion and send positive signals to the body

1.Your data room is not ready ­ Having a sparse data room will only slow down your response time to investors. Your pitch book, financial model, customer reference data
growth proof points, team bios and references are a must have.

2.Your key employees and founders don't want to stick around ­ Smart talent knows what it is worth and sticks around if and on if(iff) the leader is solid the strategy is sound and execution is near perfect. If this talent can be part of creating a system that works like a well-oiled machine then there will be sufficient job fulfillment to stick around. Most experienced senior talent leave not for salary or finance related reasons but because they foresee trouble. One departure may be ok. Be on alert if you sense a second one as something serious needs fixing.

3.You cannot articulate your business accurately business in 5 sentences ­ This is a must. Imagine you are at a networking event and you run into someone who is ready to deploy money into your space (yes, that happens!!). A smart pithy pitch from you over a glass of bubbly can tip things in your favor. Rehearse, repeat until every word you utter adds value to the previous one without sounding boring. Then you have something to work with.

4.Important milestones keep slipping This happens often in startups and is not always bad. But if this becomes a habit and deadlines become a sham then you have a systemic problem to fix.

The journey as an entrepreneur mimics and repeats many of life’s lessons. One of them is to trust your instinct

External Signals: When the world is telling you that you are going to have a difficult time raising money.1. You or your friends and family do not invest sufficient capital in the company Everyone has someone that will back them at the right time. If you do not have that some one then maybe pause the entrepreneurial journey and come back when you do have that someone. That someone could be you. However, a big caveat today is that most startups today can be hacked in a bedroom (gone are the days of garage startups) and many costs can be replaced lines of code. If you are one of those magical startups then maybe your credit card can fund you to success. Of course, it is always better to rely on OPM(other people's money) especially if the early investor knows you very well.

2. Follow up meetings with investors are hard to schedule­ If pretty much all investors suddenly get too busy to reply after the first meeting or call then maybe it is partially a reflection of the quality of the meeting. Of course, you could be approaching them around Diwali time and in that case they are all probably praying to Goddess Laxmi for great returns. But, investor eagerness to try and close a deal with you is very apparent as most investors have a strong sense of what will not stay in the market too long. They actively deprioritize deals every week that do not look interesting. And, unfortunately, most investors never say a"no".

3.Investors' questions to you are negatively phrased ­ This is a tricky one yet quite important. In an investor meeting if you get more questions like: a) why is your cap table so lopsided b) how will you remain the leader if new competition props up versus questions like c)how big could this opportunity be, you know that you have been pigeonholed into a defensive opportunity and not an attractive one. Investors send signals in meetings ­ some signals are positive and they come with positive questions such as the one on market size about and other signals are negative and come with negative questions. Some times yawns too!!

Your journey as an entrepreneur mimics and repeats many of life's lessons. One of them is to trust your instinct.