Setting the Right Fundraise Target and Tips to Achieve it
Fundraising for an early stage venture is challenging and time consuming – especially for the first time founders – and can become a full time job. The earlier stage the company, the tougher it is to raise funds. Some founders turn into constant fundraising mode and lose focus of running the company. That’s why, it is crucial to realistically understand your funding requirements and efforts involved in closing the round.
First, work out the spending priorities and the minimum amount needed to provide a company with enough resources to hit the milestones envisioned in the business plan over the next year. Then, work out the amount for the next 6 months. That should be your minimum investment target – the necessary amount to soft close the fundraise round. When the company achieves the minimum investment target, existing investors can take comfort that it has enough funds to scale and hit the projected metrics.
Next, decide on the maximum investment target. This is the maximum amount that you are willing to accept at the current valuation and figure out how much quicker that extra funding will allow the company to grow. To do this, lay out which aspects of the business that extra funding will be used for, and the impact that it will make.
Clearly communicate these fundraise milestones with prospective investors. Ambiguity around the investor proposition can cause hesitation from investors to commit and will drag out the fundraise campaign.
If some of the interested investors refuse to commit just yet, don’t get discouraged, include them in your investor updates, where you clearly outline the metrics achieved and the growth that company is experiencing. Seeing that the company is on the incline each month gives more reason to invest and strengthens your investor proposition.
When raising from angel investors, create an urgency to close the round. If you don’t, no one else will. Concentrate fully on reaching the minimum investment target. The hardest part is to get to the first 20% of the target, and easiest is the last 20%. Once you are getting close, as a call to action, set the date when the fundraise round will be closed and work towards it. You can always extend the date to allow for pledges and commitments to realise.
If you feel that your minimum investment target is challenging to attain, break it down at different valuations to incentivise investors that come in early. Once the target is reached, and the company is further down the line, close the round and open another one at a slightly higher valuation.
In the meantime, remember to keep your focus on running the company. The better your metrics become, the easier it is to fundraise.