ENTREPRENEUR SPECIAL...Expert View : A Five Point Checklist for Entrepreneurs on the Road to Raising Funds

Expert View : A Five Point Checklist for Entrepreneurs on the Road to Raising Funds

Voltaire once said that God is not on the side of the biggest armies but the best shots. But one of the enduring myths about entrepreneurship is that companies succeed because of the amount of money they raise. I agree with Voltaire, but with conditions: money is a necessary condition but not the only one for success. What finally matters is the opportunity, team and the mysterious alchemy between those two called “fit”. There are five ways for entrepreneurs to prepare for the brutal and usually humbling process of raising institutional money.
WRITE AND REWRITE THE PLAN
Of course reality is different from plans; but plan you must. The business plan must define the problem you are trying to solve, the solution that you have identified; your target consumers. The resources you need in terms of people and capital. You will not get a second chance to make a first impression, so work on the plan.
STRIKE THE RIGHT AMOUNT
History shows that no amount of money can make a bad business model good. The clock on returns starts ticking the moment you raise funds. So even if the business model is good, raising more money than needed increases the pressure to grow fast because only growth provides returns.
The need for growth gaining importance over refining the business model can lead to poor decisions. But if you raise too little, you risk being constantly in the market for funds and not being able to pursue opportunities. The optimal amount will get you through finding out who are your consumers, where will you find them, how much they will pay, and what your costs will be.
DON’T CHASE VALUATION
Valuation is important but should not be the only criteria for closing funding or choosing one investor over another. If you raise money at a high valuation at an early stage, then the pressure amplifies to provide greater returns. In seed or early rounds, when the business model is still being refined, the colour of money is more important than the quantum.
DON’T SPRAY AND PRAY
Make a short list of investors based on their track record, investee companies, investment thesis and fund size. There is no point in pitching a $10-million funding round to an investor whose fund size is $50 million. Do your homework; study their websites and articles, talk to entrepreneurs and investee companies. Look for chemistry. The investor-company relationship is like a marriage: look for how the investor deals with you during your interactions with them. Does he spend time understanding your business? Does it sound like he will be fair? Will he bat with you or against you? Does he understand the roller-coaster ride of an entrepreneurial journey?
DON’T TAKE IT PERSONALLY
Most entrepreneurs–even the successful ones–say the fundraising process is exasperating and humiliating. Don’t take rejection personally.
Fundraising is simultaneously exasperating (when investors don’t seem to get your idea), humbling (when investors don’t buy into your passion), exhilarating (when an investor does buy into your idea) and enriching (when an investor gives you the money to build your idea). The most interesting entrepreneurs recognise that fundraising is part art and part science. They target the right investors, strike a careful balance between business plan ambition and realism and focus on execution rather than valuation.
Finally, they also realise that they were lucky to be at the right place at the right time.

Bharati Jacob Co-Founder, Seedfund Advisors ET120831