Financing is one of the biggest challenges of the entrepreneurial journey. Navigating the world of venture capitalists and storytelling isn’t an easy task, especially when looking for your first round of funding or a million dollar investment.
Not to mention, in the context of COVID-19 and a strongly disturbed In the investment arena, budding founders now face an even more complex route to obtaining financing.
The business landscape has undoubtedly changed for good because of the pandemic; there are more opportunities to meet new customer needs and get ahead of future usage trends.
Founders who know there is a clear appetite for their product or service and who may exhibit early growth may in fact be in a more favorable position to ask for more money. That said, a lot of the process depends on reframing the funding process and dealing with individual investors.
Under the new conditions, here are my tips for achieving your first $ 1 million investment or seed funding, a feat I’ve managed to do on several occasions:
Rethink your approach to financing
I know it’s easy to assume that getting a round of fundraising is a signal that you are on your way to success, but you might find that the reality is much different.
Fundraising should be seen as a by-product of your success – you must already have a solid reputation and a genuinely valuable product or service to get funding in the first place.
I’ve seen many new entrepreneurs fall into the trap of thinking that a fundraising cycle is a milestone. If you consider fundraising as the ultimate solution to your business problems and funding as the basic measure of your progress, you’ll burn yourself out pretty quickly.
My big advice: we must shake up this mentality as soon as possible.
For example, if you have multiple funding rounds and include a number of investors, you are likely going to be donating a lot of capital in the process. Of course, on the other hand, if you don’t raise the money, you might find that your trail is not long enough and quickly run into financial difficulties.
If you are looking for a million dollar investment, you should view fundraising as an event to help you break even or be profitable. It should do not be a necessary lifeline for your business.
The general rule is that you must have enough money before you start the fundraising process to help get a first version of your product or service to market.
Position yourself as a spread, not as a bet
Investing is not a game of luck, it takes hard work. As the leader of your startup, you need to convince investors that you are filling a real gap in the market and that your competitive edge separates you from thousands of other startups.
I managed to make my first impressive impressions showing that my product has demonstrable traction.
It doesn’t have to be a huge revenue stream, it can be a significant number of free trials, beta customers actively using the product and seeing value, or a letter of intent from a well-known brand.
These early wins are basically proof that there is real demand for your product. If you get into an investing phase before you get the traction, you’re essentially asking investors to take a bet on you, rather than getting involved in a product with proven customer success.
So let me be clear: if you don’t have tangible (not even small) successes, don’t look for funding! None of the first $ 1 million I raised as a founder would have been possible if I hadn’t had something to show.
For my current team at GrowthPlug, we were able to generate strong customer traction around the product and have had dozens of paying customers realizing a tangible ROI with the product. With paying customers and a profitable business, it is much easier to grab the attention of investors.
Maintain your investor relationship
It’s natural to put investors in a box; they hold tremendous power and can make or break a business. Yet an investor is a human being who has the same interests as you: to see a business succeed. Just like you would with any other stakeholder in your business, it’s important to be upfront and honest with investors, regardless of the stage of your relationship.
Right off the bat, spend a good deal of your time thinking about your product journey, your customer success, and your future roadmap with investors. You’re not just selling what your business looks like now, you are selling what it will be, and for that to resonate effectively, investors need to be educated on the realistic trajectory.
Likewise, your struggles and challenges need to be addressed so that investors can prepare for the obstacles ahead – even better, they can connect you with people and resources who can smooth out potential obstacles.
You can also use your niche communities to target specific investors that you want to speak with. Do your due diligence by researching and identifying investors who know the area you are looking for.
The more you have in common with the investor, the more they will resonate with your pitch, connect with you on a personal level, and be passionate about the problem you are struggling with.
Follow the degrees of separation to establish a trail between your network and the right investors. Try to find common links and ask for a warm introduction if possible. Chances are, if an investor receives a message from someone they know referring you, you’ll be in a better position to set up a meeting.
Make your metrics talk
Similar to pulling clients, you need to present some metrics to secure a million dollar investment. Without these metrics, there is no real quantitative basis for investors to believe your projections are true.
Unlike small investments, which may rely more on qualitative data or short sales cycles to generate a quick ROI, a $ 1 million injection will almost certainly require a detailed breakdown of basic metrics.
These include Total Addressable Market (TAM), Churn Rate (Monthly, Annual), Annual Recurring Revenue (ARR), Cost of Goods Sold (COGS), Burn Rate, and Gross Margin.
In addition to the basic metrics above, here are the metrics that are particularly important for investors:
- Customer acquisition cost (CAC): how many do you need to gain a new customer. CAC can be calculated by dividing the total marketing and sales costs by the number of new customers.
- Lifetime Value (LTV): the total net profit realized by your customers over the duration of their relationship with your company. LTV is calculated by multiplying the average purchase frequency rate by the average value of a customer’s purchases, then multiplied by the customer’s lifetime.
- Cohort analysis: great tool for in-depth analysis of churn / retention data over time. It breaks down the historical performance of associated customer cohorts and helps a business identify patterns throughout a customer journey.
Prepare for a marathon, not a sprint
Getting your first million dollar investment or seed funding comes from building meaningful relationships with investors, and like any relationship, this process can be time consuming.
You will most likely need to talk to multiple investors before you find the right match (we had to go through 20-25 investors before we found the right one), then from that point on it could take months of back and forth. to finally seal the deal – and that’s OK!
Putting pressure on an investor is a sure way to see them back down, while being too relentless can seem unprofessional or selfless. Keep your favorite investor on your radar, send regular updates on your startup’s journey, and don’t be afraid to share your top challenges and big wins.
Ask what their reserves are, present them to your team if asked, and be transparent about things you are still learning or seeing as great challenges.
In the worst case scenario, you don’t get the investment you needed this time around, but you can still establish a valuable partner who can speak on your behalf with other potential investors or advisers.
To be an entrepreneur is to be humble and to take every opportunity to learn. Each investor relationship you establish will allow you to uncover key areas for improvement in your pitch deck, rethink your product-to-market fit or shape the way you communicate your key metrics, and will give you momentum towards the first objective of ‘a million.
And when you reach your goal, you’ll be ready to do it again and again.
Published January 28, 2021 – 09:16 UTC
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