Tips for Completing your First Funding Round

The funding process forms the initial stages of your entrepreneurial journey. It looks daunting, frustrating, cumbersome, and a lot of other emotions that might break down an entrepreneur from achieving their business goals. The whole process of funding from the initial pre-seed stage to the final stage can be mentally stressful. All tips for achieving a successful funding round have to be got right by an entrepreneur.

As an early-stage founder, you must be doing different rounds with different sets of investors. However, there would be a lot of barriers down the road to getting your potential million-dollar idea converted into an envisioned business plan.

Before getting started with the initial funding round tips, early-stage founders should consider the following tips:

• Strong Idea backed by detailed research: 

When introducing a new product or service in the market, it must be new and unique in the eyes of consumers. The idea should be full-proof, unique, and backed by detailed research. Any investor would want details of the idea or the product that he/she will be putting money into. It shouldn’t be an ordinary idea that seeks investment without a guide or a proper roadmap. 

When thinking about the potential idea, the market and consumer segment must be thoroughly researched. The idea used in the product must be innovate and easy to use.

Entrepreneurs should research how the idea can be scaled, its revenue model, and more importantly, how the investor and potential customer will benefit from it. 

• Legal

Carrying out a business should be legal in the eyes of the public. Such product or service must be legally recognized by the government. This would not only convince the investor that you are serious to pursue the idea but also be attractive to the consumer. The product should replicate the idea and should serve the purpose on which you will be building your business. 

• Attractive Pitch Deck:

Pitch deck is like the brochure of your idea or future organization. It should be attractive with the key ideas, market research, revenue models, future scalability plans for the business, and others. Apart from these, it should also contain a well laid-out financial model of the startup. All the aspects of a successive pitch deck must be included to ensure full marketability of your product. It should give the investor a clear picture of the idea and the product to your potential investor. 

Funding Round Tips: 

Angel Investors and Venture Capitalists are the main companies that are present in the funding forum. However, it is important to secure the right source of funding your product. 

Below are some of the tips for going into the first round of funding:

• Choosing the Right Investor: 

Funds are important but having the right investor is as good as having the required fund. You should have the ability to analyze and select who shall be most suitable for a long-term business relationship. 

More than an investor, you should try to choose an advisor who acts in the mutual interest of the success of the future organization. In the startup journey, it’s very important to build relationships and selecting the right investor will help you do so. 

If the product is unique, then different investors would be willing to invest in such products. However, it is crucial to develop relationships with the correct investor who considers the best interests of the company.

• Develop Connections

One of the crucial steps to consider in funding is to develop important connections. Talking to experienced founders, in that particular domain, will help you go about the process smoothly. This will give you a fair amount of idea of the investment and funding process.

Seek out how they raised funds and also focus on city-specific founders and learn about the challenges. This will help to build a better pitch desk and present your ideas. 

• Who shall be your Investor? 

Seed investors can be in various forms but it’s crucial to select the right one for your funding process. As mentioned above, there are specifically two kinds of investors in the startup world- Angel Investors and Venture Capitalists. 

Let’s look into these: 

Angel Investors: They invest their own money and their investment value can vary, from a few lakhs to crores. The advantage of raising money from angel investors is that you can collaborate easily as they provide guidance and add value to the investment they provide. 

They are flexible and provide ample room for improvement throughout the process. The only drawback of angel investors is that some of them want to be involved in the business and decision making process. However this is not the case with every angel investor. When angel investors are present in the business, they would take management positions of the company and be a strategic advisor of the business.

Venture Capitalists: They are the big bulls of the funding spectrum who can pump in huge sums of money and invest in many companies around the world. 

Getting investment from a venture capitalist can boost the goodwill of the brand and increase the reputation of the company. Unlike angel investors, they do not like to get involved in the business decisions and bring a formal process to the table.  

The biggest drawback of venture capitalists is that raising funds can be a cumbersome task as it is time consuming. It can take a few months to go from the first pitch to the term sheet, at the latest. 

Now, that you know what you need for the funding round and how to seek the right people, it’s time to close the round. 

Tips to Close Funding Round: 

It’s crucial to close the funding rounds on a mutually beneficial agreement that helps both the parties, i.e. the investor and the founder. 

Below are some tips to close funding round: 

• Equal Sharing of Benefits: 

The investors and the founders should be on the same page before signing the agreement. You can’t conceal any information and neither can they. Whether, its fees, product specifications, anti-dilution agreement; there must be a consensus amongst the parties. If any changes need to be made, then everyone should be informed on a priority basis. 

• Target Raising: 

Founders should close the deal by raising enough funds that will see them through the next 18 to 20 months. They should anticipate the funds based on market research and future scalability models.

• Getting the Legal Framework Correct: 

Founders should always get the legal framework right. It would be useful to seek legal advice when it comes to drafting and negotiating such agreements. There shouldn’t be any loopholes in it regarding the amount, terms of investment, policies and other areas. There must be a separate representation and warranties clause in the agreement.

Any discrepancy can cause huge disruptions which would hamper your business.

Conclusion

In the process of raising funds, you may hear the word ‘No’ more than ‘YES’ but you should know the right people to approach and learn the art of presenting your idea effectively. 

Founders need to ace the game of first-round funding to begin their entrepreneurial journey.

However, the first round is not the only round of funding, you have to do it for subsequent rounds. You need to build a business model that will ensure the trust of the investors and create an urge in them to invest further.