It’s easy to increase your chance for success, all it takes is a little thought behind your fundraising strategy. Your aim heading in should be to prove your concept / company in the market without parting ways with more equity and control than necessary. Before you pave your path to investor dollars, here are three do’s and don’ts for first-round fundraising.
DO: Prove Your Concept With as Little Capital as Possible
The key word here is prove. To an investor, it’s far more useful to hear that you have tested your concept and learned ABC as result. You do not want to simply say “we believe our concept and we believe there is a place for it in the market.”
It’s also worth noting that funding decisions often hinge on the entrepreneur, not just the idea itself. Exude hunger to test your concept in the real world rather than just waiting for someone to validate your business for you.
One inexpensive way to do this is dedicating a few hundred dollars towards a pay-per-click campaign that targets keyword searches relating to the problem you are trying to solve in the marketplace. Collect this data and show interest based on how many visitors mature into mailing list subscribers.
DO: Build Traction
It’s nature, a first-timer in anything will be held to a higher standard than those with a proven track record. The same goes for first-time entrepreneurs — you need to build traction.
Prepare your product and demo it, and once you do, ask for feedback. Not only does this provide invaluable insight from the marketplace, it allows for an opportunity to offer your product and sign people up as beta users. Having beta users will speak volumes about the legitimacy of your concept.
DON’T: Sell More Than 20 Percent
It happens a lot. People lose control of their business and it happens quickly. It’s very tempting to take a big investment, but alas that usually comes with a price — equity.
Before you meet with investors, make a decision on how much money you want to fundraise and at what valuation. And even before you negotiate, ask the potential investor what their minimum investment is. You want to make sure you are not wasting anyone’s time — especially your own. Of course it’s okay to make adjustments as you negotiate, but it’s important to know what you are working with and how far you can go. It sounds like a no-brainer, however many business owners have crumbled because they tried fitting a square peg into a round hole.