fundraising

Taking your business from a simple idea to a large corporate entity is an intensive and delicate process. The unfortunate statistic that 90 per cent of startups fail shows the importance of these formative stages. Trying to be the next investment unicorn has as much to do with logistics and planning as the power of the idea at hand.

Let’s cut the chase. The primary challenge of emerging startups is attracting investment capital to scale up operations. As noble as some investors are, their primary motivation is profit, either in the short or long term.

These investors are typically savvy entrepreneurs who can gauge the prospects of your startup by looking at several aspects of your startup.

Here are some things to get right when seeking investor capital:

Expert legal advice

The legal setup of your company is critical. For the uninitiated, the processes and intricacies can seem daunting. A fundamental decision you have to make is determining your preferred business structure.

Different business structures incur different types of liabilities. For instance, incorporating your business as a company is a display of intention to scale up. It also limits the liabilities of the business owner because the company is a separate entity. However, it is more expensive and requires more personnel, unlike a partnership.

Also Read: Why fundraising sucks, and what we can do to help

To this effect, some institutions have specialised in advising startups in the processes of startup growth. This role is something even traditional financial institutions are increasingly looking at.

In this era of robo-investors and the internet, a startup founder might not see the need for expert advice. However, it is essential to utilise experts, especially if you are not familiar with the intrigues of legal documentation.

Experts can advise you on the appropriate contracts to sign, issue to employees, and even keep the company information confidential through Non-disclosure Agreements (NDAs). Legal experts can also give your proper advice as to protecting your ideas through trademarks and patents.

Documentation should not be taken lightly. Deciding to handle it yourself instead of utilising experts can be a fatal error, especially if it leaves the startup vulnerable to external control or flouting regulations. These structures and processes are fundamental in ensuring your startup is credible and secure.

Know what you are looking for in an investor

As you would guess, venture capital typically comes with strings attached. Milton Friedman is famous for saying, “There ain’t no such thing as a free lunch,” and this certainly holds true in investment circles.

Also Read: How and when to appoint an advisor for your tech startup

For their capital, venture capitalists usually ask for a stake in the startup. Some seek to have control over the governance processes, while others want to take an active role in growing the company.

Remember, some of these investors are big names in the world of finance. Should they choose to touch your startup, it can become news in the financial sector.

Therefore, know what to look for when pitching to an investor. Whether you seek a partner to help grow your business or simply a hands-off investor only interested in stake is a consideration you must have before seeking external capital.

Depending on the nature of your innovation, location, the scale of operation, and the level of capital you seek, a marketing partner can come in handy. If you can’t utilise such a service, taking time to research the investor, no matter how famous they are, can always come in handy.

This effort will not only enable you to pitch appropriately but also manage your expectations as to the kind of offers to expect.

Also Read: Monk’s Hill Ventures’s Peng T. Ong on how to get your startup ready for the new normal

The intangibles

Besides having a competitive advantage and market viability, you have to sell your idea. Intangibles like confidence in your ideas and passion in your business come in handy.

Billionaire venture capitalist Jim Breyer claims that these intangibles made his decision to become an early investor in Facebook easily. To Breyer, Mark Zuckerberg displayed the ‘courage and intensity’ that venture capitalists look for.

Impressive as your idea is, investors give you money based on trust. Do I trust this person to take this idea to the Promised Land? The answer to this question can hinge on what they observe in meetings, presentations, and even documentation.

However, this does not mean that you have to become overly-exuberant. Over-promising is another gut check that venture capitalists can use to overlook a startup. Just be true to your idea and give it the best shot.

Getting it right in attracting venture capital is not a walk in the park. In any random pool of ideas, it is not given that the best idea on paper will shine brightest down the line.

Also Read: Ascent Capital raises over US$80M for its debut fund to invest in Myanmar’s startups: Report

It is as much about the process as it is about the substance.

With adequate preparation and expert advice, it can seem smooth. Having a reliable partner to guide your pitching process is vital. Be smart, be bold, and, ultimately, be prepared.

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Image credit: Darío Martínez-Batlle on Unsplash

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