Fundraising: How much do you need? |The Early Stages Podcast S02E06
Money makes running a company possible, especially in the early stages — but how do you close the first round with external investors? In the latest episode of The Early Stages Podcast by APX, host Søren talks to his guests about value adds, transparency and the right approach to angel investors.
In the sixth episode of the second season, Daniela Machado, Head of Legal at APX, joins Søren as co-host. Their two guests are Tolga Ermis, co-founder and CEO of promiseQ, and Bettine Schmitz, founder and partner of the Auxxo Female Catalyst Fund.
Fundraising is one of the most crucial and yet difficult things, especially for new founders. It requires a lot more than just a product. “You need to be well-connected and have the right partner to support you,” Daniela Machado says. “Often, start-ups don’t have the right guidance.” This is especially difficult because during their first years, most start-ups are unable to produce revenue. Tolga Ermis and promiseQ have a lot to add to this topic; The security start-up fundraised in 2021 and aims to take their learnings into an upcoming second round.
“Fundraising is a tool,” Tolga Ermis says. “It’s not your aim as a founder to actually fundraise, your job is to build your company and get customers.” People should understand this early on. But: Fundraising for the sake of fundraising isn’t the right way. Tine Schmitz and the Auxxo Female Catalyst Fund invest in start-ups with at least one female founder. She says: “Only fundraise if the business model needs it, like if you need to grow quickly and need a lot of financing ahead of revenues.” In her opinion, having control over your own cash flows is generally better for most businesses.
Investing in early-stage companies generally has a high-risk profile. Most of the time, the start-ups have to take the first step, as it’s less common that investors seek out promising start-ups on LinkedIn. “You quickly come to the question of how much one wants to fundraise, and why a certain amount,” Tine says. To answer this, your main focus should lay on the next milestones. For example, Tolga focused on building up his team and filling skill gaps. Calculating a number to tell the investors seems rough, but Tine knows a formula: “How much do you need to run for 18 months? You may add three to six months for the next fundraising period, but that’s a safe amount of money to talk about with investors.”
Depending on the company, the dilution may lay between 15 to 25%, so diluting by 20% in the 18-month-run is reasonable. “That’s an important step, because you are giving away a part of your child,” Tine says. “Getting more people into the investment also gets you a lot more expertise, even if the finances get more fragmented.” To do this, one should make a list of the ideal supporting investors and the areas one wants to improve on. Are there dream angels? Are topics like sales or marketing lacking in expertise? “Approach the best angels in that area,” Tine suggests. “They get a lot of requests, so just go for it.”
A common misconception is that start-ups think that they only have one shot to fundraise — that’s not true. “You rather have only one shot to convey that you’re a high potential company,” Tine emphasizes. promiseQ made the most of their first round; They improved their team and want to apply their learnings in the second round. Tolga explains: “Focus on the business development and the product.” Also, start-ups should get the angels as first step and then use their knowledge to improve the company while keeping them updated about the development.
In terms of mistakes, Tine and Tolga have a long list ready: Don’t concentrate on two things at the same time (like fundraising and sales), don’t think you should only approach angels that do a certain ticket size, and make sure to be transparent and send good e-mails. “When someone introduces themselves and suggests investing in an idea or a product, I lose interest,” Tine says. “I don’t want to invest in a product, I want to invest in a company. So tell me about it.”
Listen to the full episode for more insights and subscribe to our podcast series on your preferred podcast platform to listen to a new episode every other week. If you have feedback or topic ideas, send an email to soren@apx.vc or leave a comment on the episode through our social media channels. We hope you enjoy it!
Our podcast series “The Early Stages” discusses all the relevant questions for your “Startup-Journey” in 24 episodes. We touch on topics like hiring a team, brand building, fundraising, and leadership. In each episode, host Søren sits down with founders and an APX expert to discuss one stage of the company building process, sharing their personal experiences, learnings, and advice for other up-and-coming entrepreneurs.
