A startup is a company founded by one or more entrepreneurs to improve a unique product or service and bring it to market. Startup investment companies need a lot of money to grow, making fundraising important. Raising funds is essential for any business, particularly for startups. Due to various favorable government policies and the recognition of business opportunities in the current socio-economic scenario, startups are on the rise.
Tips to how to raise fund for startup
Fundraising investment involves in the process of Preparing a solid business plan and pitch, networking with potential investors and negotiating terms to finalize agreements and secure the necessary funding. Here are a few things to keep in mind for raising fund:
1. Plan Fundraising
In many cases, organizations seek funds when they start incurring losses or need more preparation/awareness of the implications of fundraising. Raising funds at the right time is always advisable to get a good deal. Determining the right time depends on the prudence of the management. It could commence when a potential business opportunity can be tapped or phase expansions can be phased.ย
Investors will be interested in a business that has proven a credible operational model and has scope for expansion. In addition, there could be various legal challenges to raising the money (e.g., the existing legal structure of the organization). Hence, it is better to discuss with professional consultants what steps will be taken in advance.ย
The promoter should clearly understand the funds and how they will be utilized. This will be scrutinized and challenged at various fundraising stages. If possible, plan the fundraising in tranchesโestimate the total fund required, identify the minimum amount needed for a boost, raise funding for business, prove it, and then proceed to the next rounds of investments. This approach will give the promoter more confidence, better planning regarding fund utilization, and more assurance to the investor regarding the promoter’s credibility.ย
2. Attract investors
Credible top management will positively impact the investors. Most people will also prefer to co-invest with someone with a proven track record in managing and handling finance.ย
3. Clean up financials
The company’s value will be discussed while raising funds for a startup. Proper books of accounts and compliance with local regulations are necessary to get the maximum value from the deal, reduce liabilities, and bring transparency to accounts. The company’s assets and liabilities will be considered and analyzed in detail while determining its value.ย
4. Financial projections
There needs to be peace in the fact that higher revenue projections will help raise more funds. Conversely, the more realistic the predictions, the better the chances of raising funds. In this scenario, a financial model will be very relevant. It helps understand the profitability and returns for a project under various scenarios.ย
Understanding a business investment in India gives confidence to the promoter, and he will be able to determine how much value can be negotiated for the dilution of shares. A financial model will help analyze and compare various project parameters in depth and identify potential opportunities and threats. This will also help answer various investor queries.ย
5. Qualitative factors
A business can contribute many factors that cannot be quantified. These include (but are not limited to) improving the economic scenario and creating more employment opportunities. Understanding the positive change they bring to the economy and society will benefit investors.ย
6. Competitors
Stay informed about the market and competitors. This awareness helps you grasp industry trends and conduct a thorough SWOT analysis. By understanding strengths, weaknesses, opportunities, and threats, you can make proper decisions and strategically plan for expansion, increasing your chances of success in a competitive environment.
7. Startup valuation
Though various valuation methods exist in practice, the commonly followed approach for startup investment valuation is the Discounted Cash Flow method. This involves estimating projected cash flows and discounting them using the cost of capital to arrive at the enterprise value. Preparing the business valuation using a standard base is ideal, as this will be discussed at various fundraising stages.
Other factors need to be kept in mind
Various other factors must be considered before raising funds, including determining an optimum capital structure, different funding options, the company’s current performance, and so on. Considering that startup investment is a highly liquid investment for an investor, diligent planning and care should be exercised. Like all significant events, time and effort should be spent right from the planning stage to get the best deal.
Contact our experts at Match Valley (Mob: +9195381 11008, E-mail: [email protected]) for a free consultation on preparing your pitch deck, preparing /reviewing a financial model, and for startup fundraising.
