Fundraising strategies are the ways in which investors may reach common ground with relevant startups.
We have gone over these before but came up with new ways to analyse potential business and ensure scalability (and sustainability).
The new SWOT analysis is worth a closer look, as the scenery changes for the better.
The new SWOT for fundraising stands for:
Finding the ways in which invested money would be considered “smart money”, i.e. money going to scalable startups.
Creating a path in which there is a “win-win situation” over strong-arming startups into doing the investor'(s) bidding.
Willingness to discuss other options of funding beyond equity (from startups) and actually having “skin in the game” (“fronting the startup”).
An investor should think twice before rescinding term sheets at the first sign of trouble.
Investors must trust the advisory board of the startup as well as its executive team to be able to execute from the get-go.
If it smells bad, an investor shouldn’t be there (that goes both ways, yes?)
Isn’t it all the same thing…?
Naturally, not all businesses should be treated the same.
A venture capital deal and a private equity deal are not treated the same and should not be considered the same.
The reason for it is that PE usually goes for acquisition.
The company is then “merged” into the parent company and treated as a division.
A venture capital deal is usually a “pumping cash in for scale”.
The investor(s) puts in money for a prototype to be made or for expansion.
Understanding if a startup (or corporate) is right for investment and if it is scalable stands for the “Smart” option in the SWOT analysis above.
Fundraising strategies done right
When looking at the pitch deck, an investor needs to find the “chinks in the armour”.
Going blindly for the negotiation isn’t smart.
Startups should also focus their efforts on telling the truth and not spewing irrelevant information.
The more candour in the deck, the more likely a “phone call would be in place”.
The CFO at the startup (and the principal at the fund) should do their homework.
Valuation needs to make sense.
The ask should make sense.
The expansion plans should make sense.
Valuation for the nation
Our friend Joris Kersten at Kersten Corporate Finance actually addresses the key points in the valuation of companies.
These are usually made for LPs such as banks but could be relevant for startups looking to raise capital and looking for the right point of reference.
An investor (or startup) should remember the “Trust” factor in the analysis above.
If it smells bad, the investor (or startup) shouldn’t be there.
We always say that a startup should compare itself to #10 at the Top 10 in its niche and not #1 or #2.
It’s not the humility factor, but understanding that the startup is not a “market leader” (just yet).
From there, valuation of the real market share could then take place.
If the market is worth $150B and the startup isn’t gaining a single PPM of it (yet), how could it over-value itself that much?
Comparison at the micro-scale of things makes a lot more sense.
Schooling with sharks
A startup’s fundraising strategies should be based on real-world situations, not something written in some book pre-2009.
These strategies have been adapted to the third decade of 2000 since, so using the same thing expecting results wouldn’t be the smartest way to go.
Watching Shark Tank, The Final Pitch or Dragon’s Den might give startups some perspective.
It also gives other investors a glimpse of what to expect in verticals they are not as familiar with.
The reason being for this “Openness” factor, is because some founders may have started in that vertical and ended up going for a different one.
The shift in understanding the value of the deal over its origin is imperative.
It’s the difference between ending 2020-2021 on a good note and having most of the startups in a single portfolio fail.