The startups’ helpful guide to starting a smart fundraising strategy
A startup takes a great idea and aims to turn it into something truly special, but it’s going need a powerful startup fundraising strategy to make those dreams a reality. It’s the universal truth in the new-business space. The great news is that you can take many paths to different funders to come out with the company you and partners you want.
This guide is designed to get you thinking about how to build out that fundraising strategic plan with a few thoughts on templates, examples, milestones, and more.
So, let’s dive right into the planning and understanding needed for your startup fundraising strategy to work.
Beginning your startup fundraising strategy with goals
The first element to creating a startup fundraising strategy is to learn about the valuation of startups in general and then apply it to your specific niche and location. Understanding your value, and how others value you, can make it easier to understand your fundraising path and keep hitting the milestones that are part of a long-term, successful plan.
The valuation of your startup isn’t a perfect graph that always goes up and to the right — though we all wish our businesses would take that route. Startups are valued by outsiders based on your ability to reach a set of common business milestones. How you create and move through your fundraising strategic plan will depend on how you hit those same milestones.
Your specific list of criteria will vary and can also depend on what type of financing you’re targeting — VCs may look significantly more at potential and techstack than a bank. Some of the more common milestones include:
- Market understanding — Demonstrating that there is a market for your product and service and that the market would be welcoming to a new player.
- Proven tech/product — Showing that your technology works as is intended and produces the desired results.
- Customer acknowledgement — Getting initial interest from potential customers based on a demonstration of your concept and/or product
- Customer growth — Acquiring those potential/early customers who can help a product or service start and generate traction. High numbers of free users can also work in this regard if you’re a mass-market service.
- Monetization refinement — Applying customer and market knowledge to pricing in order to meet a need while growing the business. This can be late-stage, especially for startups in the Valley.
- Repeatable and scalable — Turning those one-time customers in people who want to re-order and have recurring business. Your sales technique works, your product works, and it generates enough success that your business is seen as repeatable.
- Team is hired and fleshed out — In the tech world, an idea and product are often just the start. In many instances, a professional CEO is brought on as part of a startup fundraising strategy. This person gives your business credibility, legitimacy, and plenty of funding contacts.
- Reaching profitability — Easy to say, incredibly hard to do.
- Having a plan for the next five years — Many companies pivot multiple times during the early days of their business model. These are foundational shifts that react to the market and customers in order to get an initial product or service right. Afterwards, your business needs a long-term strategy to not only grow with the market but expand and lead it. While not usually requested during initial funding, having the long-term plan can help ensure your investors take you seriously and understand how much stake you’ve placed in this project.
As you start to build out your startup and think about customers, growth, new hires, and becoming an established player, keep these milestones in mind to help ground yourself and stay on the right path.
If you have investor friends or mentors, they’re a perfect group to go to when creating your plan to meet these milestones. Ask them about what they think is realistic and what should be accomplished as you take each step.
Remember that early discussions are about getting help, not funding. Don’t ruin your best resources by becoming overbearing.
Build your proof
Milestones will often occur throughout the first few years of your startup where you’re proving the value of the business you’ve created. Proper strategic planning and fundraising requires proof and Danny K. Malkowski, startup investment manager at #CPHFTW, suggests tying these to your major milestones and business growth.
The first proof you’ll need is your proof of concept that highlights everything a modern business plan needs. It’s your market and business approach to unique selling propositions, competitors, and anything you can discover from a SWOT analysis. This stage is how you shape your growing company.
Next there’s the proof of your product or technology. This is when money can start flowing from more directions as you work to finalize the product and demonstrate not only its capabilities but also how it meets the needs you identified in the market. It’s followed by the proof of business, which shows that you’re viable. Here’s where you’re answering funder questions, demonstrating the ability to reach your market, and refining any elements of the product to meet market demands.
Here’s where things can get tricky for many fundraising strategic plans and templates focused on you startups. Your next proof is of scalability. When you’re a big enough fish to attract largescale VC, they’re going to start asking for more data to see how you’ve grown in the past and how you can scale in the future.
Scaling is one of the biggest challenges because there’s no single path to take. You’ve got to understand your market and customers, adapt to them quickly, and then prove that you can reach into new segments, all while keeping the ship afloat. A rockstar CEO or other leader often comes in during this stage to help calm investors and others, giving you a little more leeway.
Narrowing your fundraising strategic plan
After putting together your milestone list and talking with available resources and friends, you should start to review what makes the most sense for your company structure and financing capabilities. A small startup that aims to grow slowly will want to target a very different set of investors compared to a tech firm that wants to scale up fast in hopes of being acquired by a giant.
There are many startup fundraising strategy examples around the web just waiting for your search. Look for leaders in similar situations as yours, such as SaaS products targeting a niche manufacturing sector or B2C ecommerce that’s as focused on great customer service as it is high-quality sunglasses.
You’ll find a mix of stories around self-funding, turning to friends and family, angel investors, traditional VC, bringing on strategic partners, and even a growing number of crowd-funded B2B businesses.
There are also some nuances to how the business is structured, whether you’re bringing in family to run things or are hoping to have that “home run potential.”
But, many successful companies prove you don’t need to go that route.
Focus on today
Your startup needs you to run it based on how it is performing right now. Don’t get caught up in that inviting trap of planning for the future before the foundation is set. Your fundraising strategic plan needs reliable groundwork in order to properly position you in front of the right people. Build using the resources already on hand first.
What can you do right now?
Who would that be exciting to?
Where does this potential end before you need to make the next step up?
Answer these questions and you’ll have a better handle on your best funding targets. Something with a narrow reach may not have a grand start, but that has nothing to do with how things end. Jon Oringer started ShutterStock with 30,000 photos he had taken and built it into a $2 billion business.
Build for tomorrow
It’s exciting to read about a startup that picks up buckets of cash. It’s even more exciting to be that startup. However, most of those stories finish with a company in a burning wreck at the end of a runway that should’ve been much longer.
Yes, you should be concerned about how much capital you raise. However, you should be equally as diligent in how you spend what you have. Very few companies are Uber that picked up a mountain of cash before even approaching a break-even.
You’re going to need to be efficient with what you raise and how you can multiply it. If you can do this in the early stages, then your later startup fundraising strategy can focus on how your stewardship and how well you’ve already transformed existing capital.
Invest in a lot of shoes
Successful fundraising strategic plans involve understanding the diverse types of investors that exist and why each might or might not want to invest in your business. You don’t want to build a business specifically around a target, but you should always work to consider their point of view in your approach.
Demonstrate why you deserve a piece of whatever pie you’re after and how it can generate a return that the specific investor wants. If you head over to Patreon, you’ll find a lot of small backers funding the livelihoods of entrepreneurs, investors, startups, and creatives. In some instances, funders are getting a specific product or software they can use. In many others, however, someone is creative videos, photos, or art that the audience craves. Interestingly, you’ll also find a variety of backing options for different monetary values, stages, rewards, and more.
The traditional return has a monetary value, but now some funding avenues are prioritizing societal value. Your business may be able to fit this niche with individuals or even large corporate social programs that need a partner, product, or software to achieve stated goals.
If you’re going to the VC route, look at these funders in the same way. What do they want out of you and how do they want to provide it? Is your big target someone who likes to be at the forefront, or do they wait to follow other specific investors? What targets do you need to hit in a Series A for your business and for these investors?
Learn your audience and tailor your pitch to them so you don’t have to turn around and change your business.
Look for a fundraising strategy template and success model
Build milestones, create a company timeline, and put together a target list of potential backers and funders. Once you’ve got those three elements in place, it’s time to start reading. You’ll want to find out who has similar aims and was successful in meeting them. Then, keep reading to learn how they did it and seek out potential frameworks similar to theirs.
The internet is a wealth of information, including fundraising strategy templates. They’re especially easy to find if you’re in the non-profit sector (either as a non-profit yourself or as a company serving them). There are generalized templates and guides that help you narrow down targets based on your return, velocity growth, and business strength.
It’s likely that your preferred VCs even have Medium posts about their preferred projects. So do people who’ve had their own success in seed and Series A funding.
For example, if you’re interested in seed fundraising, you’ll want to review tactics as well as things like this list of documents that your business needs for meetings, from Y Combinator President Geoff Ralston.
There’s plenty of resources out there, ready to help. At CloudApp, our approach in all of this is really about helping you craft and share your ideas. Instead of explaining a technical concept, demonstrate it with screengrabs or video. Show a funder how you can improve their day, instead of just saying it.
You’ve got a lot on your plate, so head here and get a free trial right now. It’ll be a big boost for your presentation materials, and we’ll be right there scaling alongside you