Entrepreneur Clate Mask of Infusionsoft gives for the inside scoop on how to build a $40 million dollar business. If you are stressed out over how to raise capital, don't be. Below are 7 core principals you can implement now no matter what size or age your business is:
1.) Start With Your ‘Why’ – The starting point for any fundraising is to be crystal clear on your vision and passionately articulate your story. Your team, top to bottom, has to buy in and support the vision in order to convince anyone – your father-in-law or a Wall Street investment banker – to give you money. An early stage investor wants to know you have a plan and a top-tier VC firm wants to know the passionate person pitching them will stick around to turn this vision into a reality. They also want to know you’re committed to building a performance-based culture that aligns to your vision. Putting your vision front and center of every pitch for raising capital is a must.”
2.) Know Your Market. Really. – You can have the most inspiring vision yet still lack a believable story when it comes to the market opportunity. Especially for a Series A round — to know your market is really important. These investors want to see how big the market potential is, and proof you can scale to go after it. You have to know your customer base and have a strategic plan for how you’re going to attack it. Depending on the stage of investment, the investor is typically looking for a three to 10 times return in a reasonable period of time.
3.) Know Your Needs – As you move from early stage to mid-stage, it becomes more necessary to show why you need more funds. Series B rounds are notorious for citing sales staff, marketing opportunities and product development as ‘how’ the dollars will be used. Make sure your answers don’t have holes in them. Make it clear why you need more sales staff. Why an increased marketing budget will help you own the space. And why product development will move your product forward in competitive ways.”
4.) Know Your Metrics – As for metrics, we’ve seen the SaaS investing space really mature in the last two to three years. Our latest round was all about the CLV:CAC ratio (Customer Lifetime Value and Customer Acquisition Cost). Know what your key performance metrics are before you walk into those meetings. Be prepared to show how you’ve delivered results and how you will use the proceeds of a deal to drive greater results. No amount of vision or market opportunity will erase the need for an investor to feel confident in your ability to produce a great return with their money.”
5.) Snag Great Leadership – From Seed to Series C, your management team is critical to your fundraising efforts. In the early stages, having a competent, entrepreneurial team with passion and drive to succeed is what matters. As you grow and get to later-stage rounds, a team with a proven track record working with respected companies or with similarly-sized revenue experience helps build credibility. Also, in these later stages, the questions get harder and go deeper, so having a team around you that can anticipate what investors will request becomes even more critical.”
6.) Leverage Your Customers – Equally important is to build out your customer and partner references so that third party validation of your venture is unquestionable. Going back to my first recommendation, it’s important that your customers and partners know and support your vision. As you get to the late stage funding rounds, you’ll want to prep these sources to confidently talk about your product, company and your position in the market. Knowing that customers and industry influencers believe in your vision and that there’s a definitive need in the market will give investors at any stage confidence in your business.”
7.) Choose Wisely & Shoot For Multiple Term Sheets – You may be tempted to take your first or biggest offer, but be selective. During our Series B, a top-tier firm was pretty serious about investing in us. The catch was they wanted us to sell our software to big businesses. Doing that would have been contradictory to our ‘why’. I knew at the time – and it’s been proven to me over time – that if we had given in to that request, we wouldn’t have received the Series C we did. Again, always start with your ‘why’ so you weed out the wrong firms early on. Whether series A, B or C, when selecting a VC partner, look at the following:
Right stage of investment. Do they usually invest in companies at your stage?
Interest and knowledge of your space. If the VCs show up with a deck about the market opportunity and your business model, that’s a good sign.
Fund in active investment mode. VC firms are always looking for the next great investment, but it doesn’t mean they have available funds to invest. You need to know that they are in investment mode.
By knowing why and being able to share it flawlessly with investors you should have no problem raising capital for your business at any stage.
Do you have any tricks to make your presentation more confident when pitching to raise capital that you are willing to share with our readers below?