6 Funding Readiness Hacks
As a business grows, many founders realise that to keep it scaling they need to seek external funding. Here we outline some shortcuts that should help make the process of pitching to investors as painless and efficient as possible
05 December 2024
If you’re thinking of approaching investors for funding, this article could give you a head start. It offers tips to make your search for capital more efficient. From knowing which investors to approach to understanding how to sell yourself and your business, these hacks will help put you on the front foot.
Most businesses, even if they get off the ground by self-financing – usually referred to as ‘bootstrapping’ – reach a point where to scale they need to raise money from external investors. At the earliest stages this is likely to be individuals, either friends and family or angel investors, with larger venture capital investments coming later. How do you get your business ready to take that funding, what are the quick wins and potential shortcuts you can take to make sure you and your business are an attractive option for investors?
1: Do your research
If you want to cut the time you spend chasing investment, get smart about who you chase. How you approach investors matters, but approaching the right ones matters more. Apart from friends and family, which can be a useful source of early-stage funding, investors you approach will have an ‘investment thesis’. This means they mostly invest in specific types of business. For example, one might only invest in tech-based businesses in education. Make sure your business fits the thesis of investors you approach.
Unless you are just road-testing your pitch and want practice and a bunch of quick rejections, which can be a good way to build resilience, invest time putting together a list of investors that fit your business model.
When pitching to individuals, tailor your pitch to the type of pitch they like. Again, research is crucial. You can learn a lot from LinkedIn posts and podcast appearances. Find anything they’ve written or said about their approach. If they’re focused on numbers and data, you should too. If they seem more interested in the back story, then bring that to the fore.
2: Know your numbers
Regardless of the investor and what they say they like all investors are impressed by founders who are across the important stuff. While this means being able to articulate your story and how you’ll address product-market fit, crucially it means being on top of the numbers.
If you don’t have a finance background and aren’t even sure what ‘the numbers’ are, ask. If your budget allows, a fractional finance director can help you get on top of everything from cash flow forecasts to burn rate and runway. They’ll help paint a realistic picture of how the business will get where it needs to be and how it could grow.
But take the time to really understand what they’re telling you. Don’t learn what they tell you by rote and parrot it to investors. You will come undone when they ask questions on the detail.
If the business can’t afford a part-time FD, ask your accountant for support. They want you to succeed as it’s good for their business for yours to do well, and many can offer lots of good advice.
3: Know why you need the money
Investors invest in businesses they think will grow and succeed. That’s how they make a return. Part of your job in convincing them to invest in your business as opposed to someone else’s, it’s painting a clear picture about how you plan to do that and how their money and the help, advice and support that comes with it, will play a part in helping it to grow.
Be as precise as you can about how you plan to use the money. Is it for building an initial product or future development? Or to help support sales and marketing? Or do you need it to find more customer research to clarify the product roadmap? As soon as you know share these plans and then show how this investment can be linked to your expected future growth plans. Tell a logical story where the positive impact of the investment is clear and obvious.
4: Know your customer
A bit like researching investors, you need an understanding of customers. Crucially you need to prove to investors how well you understand the market, its total size and the value of the share you intend to capture.
Customers here might be existing, early-stage customers or would-be future buyers. Having a few existing customers is a great way to show traction, something most investors love. Either way, show you have talked to enough of them and asked them in-depth questions on how they think, how they perceive your product and how it could improve their lives or solve a problem or challenge they have.
Be wary of badly designed, half-hearted surveys, where you ask a handful of people you know well leading questions that serve to prove your own theory. Be open-minded and seek genuine feedback and challenge. Now is the best time to find out that there are existing competitors you hadn’t considered, or that the time isn’t right for your product. There is still time to pivot and adjust your product to meet a genuine market need.
5: Know your business superpower
Yes, we’re all tired of the founder as hero cliché. And yet. The ability to read a market and launch the right product at the right time is a power the best entrepreneurs and founders have. They also have the wisdom to know their strengths and the courage to bring in others to cover any weaknesses.
Solo founders can struggle because to succeed they must be good at everything, and not many people are. Whether you turn to co-founders, early investors, advisors or early employees, learn your strengths and get people around you that plug any gaps. Being able to shout about your strengths and be honest about weaknesses and show how you have plugged them, is attractive to investors. They want to know how you and the team will operate when things are going well, but also how you’ll react when you hit the inevitable bump in the road.
6: Know how you operate under pressure
And, let’s be honest, you will hit a bump. Founders don’t experience a linear journey from one success to the next. There are stressful moments. The question is how you’ll cope. Investors want to know you’re not going to fold at the first sign of pressure.
This is difficult, because you may not have experienced the pressure that comes from running an underperforming business. The pitch process itself is pressured and performing well here helps. But stories from your past about how you adapted and adjusted to tough situations, how you were agile in approach to problem solving, can help. If you can weave these naturally into your backstory or that of the business, all the better. On a more fundamental level, have a think about how well you handle pressure. If the answer is “not well”, you might want to rethink starting a life as a founder.
Key takeaways and next steps
- Spending time researching investors and what they want to see or hear can save a lot of wasted time and effort
- Be clear on your strengths as a founder and plug any gaps or weaknesses with support, a team or advisors
- The more accurate you can be about projections and predictions, and the more they are backed-up by data (whether customer surveys or sound finances) the more confident investors will be
- Recognise that while life as a founder brings huge rewards, it is also quite stressful.
