Local startups aren’t reaching their potential due to mistakes made in the capital raising process. No matter how hungry founders are, lack of preparation means time and resources are wasted, and once-in-a-lifetime opportunities lost.
Aussie venture capital firms are investing more in local startups than ever before, with $848 million invested during the 2017-18 financial year according to KPMG’s latest Venture Pulse report. With an opportunity this big, being prepared isn’t just a simple matter of getting your documents in order when a deal arises.
It means knowing what you have, where the gaps lie, and how you compare to other startups fighting for the same piece of the pie. This includes having an understanding of the finer details of the capital raise process, from investor expectations to contract requirements. The knowledge you gather before the process will help you to have confidence in your decisions.
Failing to be prepared could mean more than just a failed capital raise. It hinders short-term growth and impacts reputation, which could have long-term effects, especially for startups who want to raise again.
Identify gaps before your investors do
Lack of preparedness is a key driver of deal failure — you need to know where you stand to know where you’re going and what you need to get there. Investors will compare your startup to others and will be looking to evaluate every detail that could signal a solid return on their investment.
This doesn’t mean filling gaps once you’re at the pitching stage. It’s about having total visibility over your critical information, from contracts to IP rights, and addressing any areas you’re lacking in before you even consider raising. A deal takes between six to nine months on average to complete and this doesn’t factor in the resources and preparation time required before the deal process commences.
The time you spend preparing prior to a deal is essentially what determines the outcome. While running a startup day-to-day is demanding, ensuring you have a solid foundation is critical to a successful raise. Before kicking off, look into what other startups that successfully raised capital have done and how your startup stacks up. Understand where your gaps are and address them early — this preparation will ensure you raise the amount you need and reach your potential.
We’ve seen more than 25,000 deals completed on the Ansarada platform, allowing us to glean incredible insight into the attributes that lead to success and failure. The startups that don’t hit the mark and fail to attract enough attention from investors usually have a handful of commonalities: they’re underprepared, they don’t understand what investors want, and they aren’t ambitious enough.
Seek the advice of an advisor and make sure you’re arming yourself with tools that help offer startup insights, streamline processes, and allow you to make more informed decisions. Investors will be analysing your startup with a fine-tooth comb, so make sure you’re able to prepare things with the same level of detail. This takes time, however, and the right tools will take care of this, allowing you to focus on strategy and bigger picture preparation.
Play to your strengths
This involves more than just having a good investor pack or pitch deck. Founders should know every detail about their startup — no matter the size — in order to attract investors. This means understanding your current strengths and weaknesses, and showcasing your knowledge and ability to plan for success and learn from failures.
Even if you’ve made mistakes along the way, how you’ve handled these can have a big impact on whether an investor decides to move forward with your startup. Whether you pitched to the wrong people or you built a team that didn’t have the right skill set to execute your ambitious vision, it’s important to show you won’t make the same mistake twice. Investors need to be convinced their funding isn’t a significant risk and the potential is immense.
Always be ready
It’s not just about getting ready before you want to raise, it’s about remaining ready all the time. Preparation is important, but in order to make informed decisions about your startup on an ongoing basis, you need to understand its value, know your strengths and weaknesses, and have the ability to quickly jump on opportunities with confidence whenever they arise.
From new hires to increased investment in product research and development, the right information will allow you to understand what you need to prioritise in order to scale grow your startup and achieve success. This includes securing company IP and developing equity ownership profiles that aren’t going to jeopardise your ability to build a successful startup. Don’t give away too much too early in order to secure investment — value your startup, and don’t take on more than 20% dilution during any round.
Don’t wait until it’s too late
We’ve seen thousands of startups go through the capital raise process, with many failing simply due to lack of preparedness. The ones that succeed know their startups inside and out, and have the to ability quickly make informed decisions.
The money is on the table, all you need to do is take control before an opportunity passes you by. Prepare early, stay ready, and become confident in the fact you know your startup better than anyone else. By doing this, you’ll complete a successful raise and allow your startup to reach its full potential.