VC Funding – When to raise it?
While the spirit of entrepreneurship is highly appreciated, not every entrepreneur gets the backing of venture capitalists. And there are very valid reasons behind that. First and foremost, the venture capitalist needs to make returns for their own investors, hence, they refrain from investing in plans they don’t see as profitable. Additionally, most of the start-ups don’t have clear, lucid & well laid out business plans to share, which the venture capitalists love to see. And, given the present hype on start-ups, though tempting, it’s advisable not to raise money if you don’t have a well thought out business plan.
For starters, before you go out looking for funding, think why you need funding. Is it really necessary to have it or you can still go on without it? While it is good to have the backing of some strong investors, it is advisable to get the company on its feet as far as possible, on your own. With a strong profile or a business plan, investors would be curious to invest in your company and give you a higher valuation
If you can afford it, it is also not advisable to raise funds too soon, as you then get an added responsibility of not only managing your business, but also managing the expectations of your investors. After a while, given the rush for growth, the company ends up with a “shooting from the hip” management style.
To ensure you have sustainable growth, you should have comprehensive business plan for not only marketing, technology, revenues, competition, etc but also for how you would want to strengthen your business’s core; This would include having a plan to put policies in place, actively manage costs, define roles & responsibilities, ensure proper management reporting, set up proper methods of internal communications, etc. It’s important to put effort to establish these systems and policies, so that even during phases of abnormal growth, the organisation works efficiently. Without putting these systems or plans in place, any such unstructured growth would just be a ticking time bomb.
When you have figured out that you do need funding, it is advisable that you take off your hat as the owner and see the organisation from the investor’s perspective. Make sure that you have clear future timeline and set goals. Figure out your weaknesses and any shortcomings that you may have and how you plan to overcome them. Also, point out how the investment will help you overcome those shortcomings. An important aspect would be to visualise how you expect the working relationship between you and the investor to work out and what your comfort zone would be.
When you are ready to pitch for funding, do remember to make it personal, so that you are aware of each and everything related to the company. This way, it puts a lasting impression. It’s good to convey that you are willing to work with investors to grow your company. Always pitch to the investor, who is looking to invest in your geography and sector. This makes it easier to work with the investor because they are aware about the market. Generally, within an investment company, there are specialists, who look after specific segments or sectors of the market. Try to find out the person and learn about them before you go for pitching.
Before an investor invests, ensure that your plans and goals for the business are aligned. Ideally, you have to be ready to be flexible to the investor’s point of view; be ready to either align your goals according to the investors. Else, make sure that you can put your point directly to the investor, so that they understand the benefits they derive from your plan. This is essential to avoid confrontations, which can tarnish your and your company’s image.
Related posts
