Investors approaching you for funding is a good sign that you’re creating the right buzz in the right circles and doing something worthwhile with your business. It’s what some founders dream of, while others see raising funds as a crutch. However, investors coming to you isn’t a sign of your readiness to raise funds.
So, how do you know if it’s the right time for you to raise a round of funding? The answer differs for each business. We’ve got a series of steps and considerations for you to figure it out yourself.
Related: How Startups Can Maneuver the Current Funding Slowdown
You’ve garnered enough interest
You may still be working on an MVP or prototype but already have enough interest in your product or service. This is a clear indication that you have something that the market wants and that you may be able to accelerate growth with an investment.
You have a six-month-long runway
Since fundraising doesn’t happen overnight, we suggest you start the process with at least a six-month-long financial runway to last you while you pitch investors, have conversations and secure investment. The idea is to look for funding before you absolutely need it.
You could use some support and resources
While fundraising gives you access to capital, it also brings expertise and other resources to your business as investors work to get you exposure. If you’re at a point where you could use external expertise from investors and their networks, fundraising can be a smart choice.
Related: Raising Capital as a First-time Founder
Now, let’s see instances where it would make sense for you to wait it out before raising funds.
You’re unsure of your scalability
There is only so much you can grow without scaling operations. Besides figuring out how to scale your operations effectively, a startup also must discover how to increase their customers without increasing costs. Scalability means boosting revenue while limiting costs.
Businesses not dependent on the founder that have a sizable opportunity for future demand are usually scalable. Prepare a plan for scaling your business. Then, look for funding.
You don’t have an updated business plan
Has it been a while since you updated your business plan as your business advanced? Or did you never create one in the first place? Every startup looking to raise funds needs a detailed business plan with its operations elaborated on it.
The plan should also outline your product/service, target market and expected financial growth over the next decade. This provides investors much-needed understanding of your goals and how you plan to achieve them.
Your financials aren’t in the green yet
If your business isn’t making profits yet, you will have difficulty convincing investors to fund it. Financial performance is critical proof of the usability and demand of your product/service. Not only do you need to make profits in your business before attracting investors, but you also need to present proof of your profits as well.
Typically, investors want to look at two to three years of financial statements. Your profit trajectory also tells a story of your business and predicts its future for investors. Make sure you have a good story before you raise funds.
You don’t have any strategy execution
Building a strategy, executing it, measuring results and tweaking it shows that you are not performing guesswork but making strategized decisions in your business. You need to show that your team has worked the muscle to build and execute a strategy.
Having a strategy well-documented means you can demonstrate your implementation, tactics and risk mitigation with the KPIs you’re optimizing for. Investors value it highly. So, document and execute a strategy before you attract investment opportunities.
You need to generate more buzz
Investors typically don’t want to invest in a consumer product unless there is a long waiting list of people ready to put their money down on it. If you feel you could do more to attract potential buyers, now is not the time to raise funds.
Generate that buzz, get more people excited about your product, then start pitching to investors so that there is even more credibility behind your startup.
You can continue to bootstrap
If you have a long enough runway to continue to bootstrap your startup, you may choose to delay funding. Think about all the resources you need- cash, talent, network and tools. You may have cash available from crowdfunding that hasn’t been exhausted yet.
However, if you feel you could do more with added funding, it may be time.
Related: Bootstrapping or Venture Capital: Figuring Out the Path for Your Startup
You don’t have the time to invest in pitching
We all wish raising funds wasn’t as time-intensive as it is. Pitching investors takes a lot of focus, time, effort and money. You first invest in creating a pitch deck. Then, you contact the right investors, schedule meetings, and have many conversations and follow-ups.
And it may take some time before things move forward. So, hold off on pitching until you know you can commit the time and effort it will definitely demand.
Arm yourself with knowledge
Reach out to fellow founders, investor network, acquaintances and friends who’ve raised before. Ask them about their personal experiences and learnings. Curiosity is your friend.
Consult a business attorney
Your business attorney holds critical information about the logistics of raising investment. Go over the legalities, apply for patents (if need be) and cross-reference your offering with three major competitors.
Gather both stories and numbers
Both stories of your startup and its numbers are vital information in raising funds. And they must both match to create a coherent picture. Gather and document all the information you can.
Prepare a pitch
Before you start reaching out to investors, build a compelling pitch deck that explains who you are, why your business came about, who you want to serve, the goals you want to achieve and how you plan on getting there.
Related: Your Guide to Investor Outreach for Startup Fundraising
Target the right investors
Not all investors are right for your startup. And know that you have the right to choose who you bring to the table. Create a list of characteristics you would value in a potential investor and think this through!
At KiwiTech, we help startups secure meaningful funding from expert investors in all industries through our unique and successful access-to-capital program. The program acts as the perfect matchmaker for a startup and its potential. Reach out to us to get started with your perfect startup or fund.