How To Position Your Tech Startup To Raise Funds
Despite the changing economic and entrepreneurial landscape, the advice for how to give your startup the best chance at raising capital stays consistent. Venture capitalists search for up and coming startups that offer one-of-a-kind value propositions, who have the strategy in place to grow, scale, and ultimately give a significant ROI to investors.
There has never been a better time to work on your startup's positioning if your long term goal is to raise funds – whether you're raising a seed round, a Series A, or a Series B. A recent 2020 report from Carta found that the average length of time between a seed round and a Series A is 22 months and the average length of time between a Series A and a Series B raise is 24 months. One thing's for sure: raising money is a long game. But by positioning your startup according to these tips, you're likely to find more success more quickly.
Prove That Your Company Is Disruptive
“Disruptive” is that big buzzword that can sometimes feel elusive and reserved for ‘unicorns' like AirBNB or Uber. Simply, ‘disruptive' refers to a company that is innovative and groundbreaking. In short, what are you doing that others cannot? How are you changing your industry with your startup? Jason Humble, CEO of Humble Capital Consulting, specializes in vetting and investing in tech startups, and to him, this disruption is the key indicator of whether or not he should invest.
“Focus your pitch and your value proposition on what everyone else is not doing,” Humble advised. “How can you prove that your company will take over market share and cannibalize other companies in your industry?” Humble has invested over a million dollars in funding in several tech companies, and is currently invested in a company called Digital Air Technologies that's doing just that with its automation technology. “Investors want to make sure that they're investing in companies that are proprietary,” he noted. “Proprietary always wins. Go for legacy rather than money as you build your company.” Focus your pitch on how you are different, rather than riding the coattails of similar, successful companies. In this case, proving you're the black sheep is an advantage – it's exactly what they're looking for.
Create A Wireframe Concept
Some tech companies have to wait to raise capital to actually build their product, which creates a chicken and egg scenario. What's far less expensive and important for a pitch is to create a wireframe concept for your app or technology, so you can actually show investors how it will work once it's developed. It's second best to already having the tech developed, but is a non-negotiable if you don't. In addition to showing the wireframe, prove that you have the intellect and skill on your team to build what you're thinking of building. This wireframe can also be functional – Shopify was created on the web-application framework Ruby on Rails before it was built entirely, and actually enabled the founders to run the business for six years on their own before raising any money. Luckily, there are plenty of tech resources available to help you get started sooner rather than later.
The wireframe concept will also prove that you've thought through everything needed to build the technology, which will make your ask for a specific amount of funding more sound and rooted in data. Investors want to know what, specifically, their money is going towards, and they don't want any surprises. Back up your wireframe with details on how you'll build the real thing.
Show You Can Bootstrap
One thing's for sure: investors don't like risk. They're great at disseminating which companies are more risk-averse than others, but the more you can help investors feel like it's a no-brainer to take a chance on you and your company, the better. So, prove that you can bootstrap! This proof may lean on past experiences that you or your founding team have had in previous companies, or on the work you've been able to do without cash so far. The more efficient you can be with funds, the more investors will view you as responsible.
Create a financial projection spreadsheet that shows how well you can bootstrap – which will likely depend on your connections and what you can do for free. For example, rather than allocating $20,000 to marketing in Q1, who do you know in the publicity world? Who can you partner with for a sponsored Instagram post? Michelle Phan, the founder of Ipsy, leveraged her eight million YouTube subscribers to get her business profitable ($150 million in revenue, to be specific) with a seed round alone, before she went on to raise $100 million in a Series A. Bootstrapping is more than just financial savvy: it's proving the resources you have at your disposal to make your company work without flushing it with cash.
Every startup will have a different funding journey, but the more you can do on your own before you seek out investors, the better. Remember: investors want to jump on a rocket ship that already has enough fuel to break the earth's stratosphere. They can get you to the moon and beyond with their investment, but you first have to prove you were heading there on your own.