Closing a funding round for startups can be a daunting task regardless of whether your idea looks promising. So, we make it easier for startup founders to raise funds from investors in this article.
The challenging reality of fundraising is that first-time founders are likely to encounter 10 or more investors before they can close the deal. Of course, they can do it at their own expense. However, it may be difficult to be up against heavily-funded competitors as they have more cash to leverage their business.
Rather than extending your list for more investors, wouldn’t it be better to target fewer prospects with higher chances of closing the funding round? That’s our goal for this article; we want to share with you some practical tips to snag that startup funding. Here are the steps you can try.
Tips to Close a Significant Funding Round
Create a Checklist
Remember that to-do checklist you made for a personal project? Now do that, but this time for closing a funding round. A closing checklist helps you zero in on the important action items to get that investment.
Additionally, include or delete tasks after researching the deal and having met the stakeholders. Once this list is ready, add them to your project management tracker or your desk. Review this checklist every day to keep track of your progress. This template checklist can help you get started on your financing campaign.
Offer flexible options
Since investors are unique in their goals and motivation, using a take-it-or-leave-it approach will hardly work. Hence, it’s important to be flexible, especially with non-institutional or retail investors.
Keep in mind, raising funds with a family member entails different terms than, say, with a venture capital firm. If you’re raising capital through equity, convertible debt is preferable to a preferred stock for family and friends. Also, be flexible with the investment amount to give them some options.
On the other hand, if you’re raising funds through debt, offer prospective investors two to three options to join in the funding round. These options may include different amounts, repayment schedules, and time horizons.
However, if you insist on an investment threshold, for example, $50,000-100,000, this only works for affluent people with more cash to invest.
Pay a third-party network
Another thing to consider is whether it makes sense to pay someone to help you find investors. Nowadays, most investors are part of an angel network. That’s because this organization already sifts through opportunities, so it’s easier for them to make the right investment decision.
So, if you want access to more investors, then yes, paying a third party will be a good choice. There are tons of options so make sure to do your due diligence before paying anyone for their services.
Find a law firm with expertise in startup investments. Ask references from people you know and always check their credentials. While big-name law firms seem a likely choice, they may not fully understand how smaller ventures work.
Additionally, law firms that justify their exorbitant fees can make the process painful and further delay the deal. Nowadays, funding rounds are simpler and less expensive to perform.
Prepare for a follow-up meeting
To ensure that your partnership with investors gains ground, close each meeting with an action plan for the next session. Ideally, it’s better to split it into two to three meetings, to give investors more time to settle in.
At the second meeting, you can be forthright and ask them if they still have questions or doubts about sealing the investment. Their response will serve as a basis on whether you can handle these concerns or not. Moreover, this information is useful for when you and your partners prepare for the follow-up calls.
Get ready with a backup plan
We always hope for the best, but what if you won’t close the investment round? It’s an all-important question that you need to answer before starting a fundraising campaign.
Having a backup plan doesn’t mean 100% acceptance of a possible failure. It gives you the confidence that you’re ready with all possibilities, and investors will recognize that.
Your Plan B may include a series of small rounds of funding backed by existing investors, as well as cost-cutting measures to ensure that your venture will survive for several months without a cash infusion.
Set a deadline
Time is also critical at any startup funding stage. So, take charge and keep everyone on the page with the deadline. The moment you send the documents, everyone should be clear on the goal and the specific deadline.
To see progress with the funding round, follow up regularly. Be straightforward with stakeholders on things that need to be done. If there’s a delay in processing the documents, set a meeting where you, investors, and the lawyers can discuss them.
Closing of the deal
Once documents are almost near the end, decide how the final docs should be signed and money wired. Essentially, the closing date usually happens seven days after completing all documents.
During this period, set multiple meetings with investors to confirm if they’re ready to sign the document and send the funds. As always, stay involved throughout the process and ensure that everything is smooth and efficient.
The Odds of a Successful Funding Round
There’s no doubt that fundraising is one of the arduous parts of the startup journey. However, it’s a critical process that entrepreneurs need to undergo to grow their business.
These steps should guide you in acing that funding round. Once you’ve gone through them, continue to create and maintain a genuine relationship with investors—one that’s built on trust, competence, and authenticity.
Keep in mind, these investors ARE your partners. They took a chance on you because they believe your ideas will work. So, don’t rest on your laurels once fundraising is done. Work hard and show them that your startup is worth the investment.
To increase the odds of raising capital, startup gurus Matt DeCoursey and Matt Watson are here. They are our dynamic CEOs at Full Scale, a KC-based software development firm with an offshore arm in the Philippines. They’ll mentor you on how to leverage success at raising investment and growing your startup.
Get your FREE mentorship with the Matts today. Contact us to know more.