How to raise funding for your startup: 3 things that matter

While startup ecosystems in Europe have matured I am reminded everyday I exchange with founders that new entrepreneurs are born everyday hence it’s important to keep knowledge current.

If you are a serial entrepreneur and have already raised $ 1 M + just save yourself time and skip this post. If you are like 90% of first time founders who are reading this and are at their first take raising money go ahead and read.

First time founders need a reminder that while focusing on their customers + ‘job-to-be-done’ are ultimately all that matters, raising money can make the difference between being a promising high growth business with tons of potential and one that actually makes it.

Many institutional investors have ‘theses’ and a methodology for cherry-picking which companies and founders to fund but you’d be surprised how many don’t and just follow a ‘more art than science’ approach which is ultimately driven by emotions and gut-feeling rooted in their experience and passions.

Whichever the case a combination of below is almost always at the core of a financing decision.

3 Things Entrepreneurs need to show investors

1. Team, leadership, knowhow, skills -> this is pretty obvious. Show you are the right team to execute on the opportunity. Often teams are at their first startup attempt — it doesn’t mean they have less of an opportunity to succeed. It does however mean that as an ‘unproven’ team you are going to make an extra effort to build social proof and bump up your credibility. First identify what are the critical areas your business needs to succeed. Then make sure your team is well balanced in those areas and if not do take proactive actions to address this. Finally communicate clearly why those areas are key and why your team is the best suited to execute. Remember actions (product prototype / early customers ) speak louder than any words

2. Product market fit traction metrics / unit economics etc..(the more the better, sales, turnover growth rate) — > often see founders getting stuck on this as they feel they haven’t had enough time to build up astonishing revenue numbers. However you don’t need to wait until you have millions in sales to be an interesting prospect. Relative MoM % growth rate is way more interesting in identifying how close you are in product / market fit and identified distribution and growth channels. Conversion rate, Retention rate and churn are way more meaningful unit economics to qualify your business than the absolute revenue numbers — feel free to share your absolute revenue numbers or downloads but you’d be seen as a fool if you would expect an investor to look solely at those and make an investment decisions.

3. Is it the right time? (market momentum, legal framework, blue ocean market vs red ocean ) — > often well executed products of greatest ideas fail to deliver if the market isn’t ready for adoption. It can take years to move from a niche of early adopters to mass market or even worse your product is trying to re-invent a habit within a well served segment with tons of competitors. Understanding your value proposition and how differentiated it is within the context of the market is key.