A startup funding comes or from an investor, group of investors, or venture capitalist(s) for a startup company. This funding will help the company in growing, too, so that you wind up with a small slice of a much larger pie.
An investor is who invests their own money into startup companies in the hopes of gaining a return on their money. Many investors are entrepreneurs themselves, or executives and business or community leaders. Angel investors can invest individually, or as part of an angel investor group. Angels come in all shapes and sizes, from newbies to seasoned investors—and they invest anywhere from very small increments.
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Check out the negotiation skills which can help you get the funding round cleared.
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Well-crafted pitch
Any longer and the potential investor will most likely have moved on either physically or mentally. Needless to say, this is not easy. You can prepare a well-crafted pitch which must be able to condense all of the information in your PowerPoint presentation form. Once you are successful in the elevator pitch, you must be able to present a slide presentation in about 15 minutes, then leave time to answer questions within another 15 minutes.
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Business Plan
You must spend a significant amount of time drafting a coherent and persuasive executive summary or business plan that sets forth, and below are some points that have to be answered clearly:
- The problem that the startup will be solving
- The size of the market the startup will be addressing
- A sustainable competitive advantage
- The expected revenues and costs of the startup that are supported by realistic and detailed assumptions and projections
- A description of the startup’s management team
- The exit for the investor’s
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Exit Strategy
You must ensure your PowerPoint presentation and business plan address how the investor will make money also known as “the exit” from investing in your business proposal. Many entrepreneurs never address this basic need of investors. To avoid this oversight, you must be prepared to answer an investor’s questions about how the investment will be monetized through, among other things, licensing agreements with larger companies or a strategic sale of itself to a larger company.
Speaking of the preparation process, there are a few jargons that are common in the investor circle that sometime might baffle you when you hear them for the first time during negotiations. Here is a small list that you could familiarise yourself with, when you’re gearing up for your final stages of funding.
Capped notes
Refers to a “cap” placed on investor notes in a round of financing. Entrepreneurs and investors agree to place a cap on the valuation of the company where notes turn to equity. This means investors will own a certain percentage of a company relative to that cap when the company raises another round of funding.
Due diligence
An analysis an investor makes of all the facts and figures of a potential investment. Can include an investigation of financial records and a measure of potential ROI.
Capacity building
Capacity building is the activities, resources and support which strengthen the skills and abilities of people and community groups to take action and lead the development of their community. It involves building relationships, delivering services and people taking part in community initiatives through governance.
Beneficiaries – Direct & Indirect
How many people will benefit from participating in your project? Direct beneficiaries are those who gain from involvement in the funded activity. Indirect beneficiaries are those who do not participate in the the action/activity provided but who gain as a result of the involvement of the direct beneficiary.
Matched funding
‘Matched Funding’ means securing funding from more than one source to pay for the costs of a project. A funder may offer to award 50% funding based on the other 50% coming from another source (raised by yourselves or from another funder).
Exit
This is how startup founders get rich. It’s the method by which an investor and/or entrepreneur intends to “exit” their investment in a company. Commons options are an IPO or buyout from another company. Entrepreneurs and VCs often develop an “exit strategy” while the company is still growing.
Full cost recovery
‘Full cost recovery’ means securing funding for all of the costs involved in running a project. This means that you can request funding for direct project costs and for a proportionate share of your overheads.
