10 Tips To Prepare For Fundraising From a Venture Capitalist

The most difficult part of starting your own business can be raising capital. As the competition increases every day, your chances of raising funds significantly decreases. However, don’t lose heart as it is not completely impossible for you to raise the money you need to grow your startup.

To help you max out your chances of success, we asked Jason Edwards, an investor and founder of the startup intelligence platform VentureCap Insights, for his top tips to help you prepare as best as you can before meeting investors to pitch. Edwards has seen many startups ask for money from his experience as a venture capitalist as a partner at January Capital, a Singapore-based venture capital firm, and previously, as a partner at Qualgro, another VC firm.

By the way, if you already have a business idea and are planning to raise money for your company, have you already registered your company and made it official? We can help you with that, otherwise, read on for 10 Tips to get yourself ready before approaching VCs.

Tip #1: Be Coachable

Startup founders may often overlook this -- coachability is deemed critical, and possibly even the most crucial criteria that investors seek in entrepreneurs. No one wants to invest in an arrogant founder. However, it doesn’t mean that you always have to do what the VC says.

Some traits to be coachable include:

1. Be humble
2. Be willing to listen to advice
3. Be transparent
4. Have integrity
5. Have aligned interests, you have to feel good about staying with the company

Tip #2: Research and Be Interested in Your Investors

When you talk to investors, always do your prior research. Get to know the space where your investors invest, their team, their recent investment, and their focus is.

At the end of the day, it is all about respect. Don’t expect investors to have an interest in you when you have no real interest in them.

Tip #3: List All Relevant Possible Investors

Set yourself up for success, by starting with a list of all relevant investors that might be interested in your startup. You can then prioritise as to which ones you want to go after first.

With VentureCap Insights, you can easily search for investors by the types of startups they have invested in and the stage they have invested in. You can then see every investment they have made, how much they invested into each round, for each company. As such, you can find all of the investors that may be interested in your startup.

You can also be able to get more information about those investors such as their email addresses and LinkedIn, so you can easily reach out to them.

Tip #4: Check Out The Competition

If you don’t know your competitors, you are being overconfident and oblivious.

VentureCap Insights allows you to see the valuations of every other startup and information like their financials, that you can use to help determine your valuation and to justify that valuation to investors.

Additionally, you can also check on competitors or companies in similar spaces to see their revenue, valuation, how much they raised, their cap table and more.

You also get regular updates on what companies have raised, as VentureCap Insight captures every fundraise, with 10 times as much information compared to web crawlers like Crunchbase. This allows you to see exactly what is going on in the fundraising space. The updates will also tell you which startups have filed their financials, which you can then see.

Tip #5: Know Your Company’s Valuation

Make sure you are clear on your valuation and never go to a VC and say that your valuation is $x because I don’t want to dilute. That will only reflect badly on you and reveals your greed and a complete misalignment with everyone else. It shows that you only care about yourself. Valuation has nothing to do with dilution.

For the first time, you can use benchmarks through VentureCap Insights to work out your valuation. One of the hardest things to do in fundraising is to work out your valuation because there has never been a platform that has every single company’s valuation in Singapore. In the event a VC asks how you came up with your valuation, you can then justify and compare against similar company models to better defend your valuation.

Tip #6: Focus On Investors That Are Interested in You

Don’t limit your investors to just VCs. Some non-VCs invest too, like family businesses. Money is coming from a lot of places, so make sure you choose based on your sector and who you would like to have in your cap table.

Ask yourself this -- If you had the ability to choose, which investor would you prefer and why? Ideally, choose investors that can follow on and fund you for as long as possible, otherwise you will be challenged to raise funds in future. Focus on investors that might be interested. Don’t waste your time on those who are not interested in you. You want investors you can contact during the weekends. You will want to build a relationship with your investor, so it is crucial to find someone you feel good about, someone who cares about you.

If your investor lacks genuine interest in your startup, then maybe they should not be on the top of your list. Don’t just go for brand names, as they may not be able to provide you much.

Come up with a longer list if you can, then prioritise who you would like to fund your capital.

Tip #7: Have An Exit Strategy

This is a question that startups don’t often answer well - “What’s the exit?”

First things first, you have to be very clear that the VCs are investing so that you will eventually sell your company. Your company may go for Initial Public Offering (IPO), but this is usually unlikely.

No matter how much you love your company, chances are that you will sell it in the next five to 10 years. You need to be very convincing that that is going to happen, and this is what draws investors in. You need to convince VCs that there will be an exit, with the names and profiles of people who could buy your business. Ultimately, it doesn’t matter if you only become a profitable business, since this doesn’t provide a return for VC and that is not the model for VC.

Ultimately, you have to have a business exit strategy, and be clear about what you are going to use your money for.

Tip #8: Be Efficient

You are most likely to have to fundraise every 18 months. Find ways to improve your workflow and be efficient. Set up a very good data route where your generic documents can simply be replicated so you have your information organised and easily updated when new data comes in.

Tip #9: Be Careful Of Your Forecast

If you forecast a “hockey stick” -- characterised by a drastic increase after a relatively flat and quiet period -- and almost everyone does, the VC will ask for your previous pitch, look at what you said you will achieve and ask why you didn’t manage to achieve it.

If you predicted that you would achieve great heights but failed to do so, VCs may question how they can believe you now. In a nutshell, be optimistic about your predictions, but don’t be ridiculous.

Tip #10: Know What You Want To Achieve in 18 Months

Think carefully about how much you want to raise. The more money you have, the faster your company can potentially grow.

To work out this figure, work backwards and ask yourself what you want to achieve with the money, your plans for the next 18 months, the significant milestones you’re aiming for, and the amount of money you need to achieve these.

Are there any other milestones if you achieve your previous goals, and are they going to be sufficient for your startup to raise money at a significantly higher valuation in 18 months? That is an indication of how much they need to raise, factoring in dilution.

If you raise more now, the more the dilution. The lower you raise, the less the dilution but growth might be slower. You don’t want to be raising funds every 12 months, so aim for at least an 18-month runway.

What Is VentureCap Insight?

This the only source of accurate, comprehensive and up to date information on fundraising, valuations and revenue for startups and venture-backed companies. Other platforms rely on web crawlers and volunteered inherently unreliable information, covers only a limited number of companies and only provides aggregate fundraising details. VentureCap Insight relies only on source documents so our data is always accurate. We know as soon as any company raises funds or any VC investor invests so we are far more comprehensive, and we are the only source of information for revenue, valuations and much more.

What information does VentureCap Insight provide?

• The exact amount of funds raised by every company, and the amount invested by each investor, at every round.
• The top line financials, such as revenue, revenue growth and EBIT
• The valuation of each company at every round, and the value of every investor's investment based on the last round valuation

VentureCap Lite has information on thousands of investors that have invested in Startups in Singapore and Southeast Asia. From angel investors and family offices to VCs, large companies and other types of investors.

Interview conducted by Safiah Alias
Write up by Melissa Yeo