Just a few years ago it seemed as if venture capital was available to anyone who asked for it. These days, raising funds has become a laborious challenge for startups seeking support amid the global economic downturn.
With sky-high interest rates causing investors to hesitate, venture capital almost halved in the first six months of 2023.
However, rather than accepting defeat, the ambitious startup community is raising its game. Google searches for ‘how to raise series A’ have skyrocketed by 365%, while searches for ‘how to raise funds for a startup’ are up by 136%.
With the right approach, it’s entirely possible for determined founders to survive the startup funding winter. Here are six key tips on how to raise funds during a tough economy.
Don’t wait for your cash reserves to fall into the red
Estimate how long it will take you to secure funding – and then double it.
VC investment has seen a sharp drop in the past year and you don’t want to be forced to accept a bad deal because you’re strapped for cash. Giving yourself plenty of time will ensure that you can find the right investor offering the right terms for the right price.
For your seed round, give yourself eight months. And, for your Series A, you need a runway of at least a year. If you find yourself short on time, it’s best to raise an extension for the previous round rather than rushing through the next.
Build a data room and keep it well-organised
Before committing to supporting your startup’s fundraising efforts, potential backers will want to do their due diligence.
Offering access to a virtual data room, where they can effortlessly access any information they might need — pitch decks, financial models, P&L data, company analytics, and monthly updates — is a great way to avoid delays, make a strong early impression, and get those vital funds in your account sooner.
Building a data room can be daunting. So, start small and add to it as you prepare new materials. Just make sure it’s structured well and easy for potential investors to navigate.
Approach fundraising like any other project
Set up your preferred CRM system and keep your communication pipeline simple. The more complex, the more of your valuable time it’s going to take up and the less likely you are to actually use it.
Then you should commit to a handful of sourcing channels — In our case, it’s Network, Warm Intros, Crunchbase, PitchBook, and LinkedIn — and get pitching.
But, don’t expect one email to secure an investor. You’re asking them to hand over large sums and that takes time and trust.
I believe startups need at least 10 touchpoints to build that relationship, which can be anything from an initial pitch to a casual conversation at a party, social media presence, or an invitation to your next Board of Directors meeting.
Don’t let rejection halt your momentum
Fundraising is a numbers game and you should be prepared to hear “no thank you” far more than you will hear “tell me more”.
You shouldn’t be disheartened by rejection. Giant names such as Google and Airbnb initially struggled to get off the ground – and look at them now. When you get a no, add that contact to your investor update mailing list. They might just change their mind when they see your success. It might take some more time and effort, but your persistence will eventually pay off.
Treat the process as an investment in yourself
I’m sure you’ve been told time and time again that 90% of startups fail, and I’d be lying if I claimed that you’re certain to find the funds you’re seeking.
But, even if your fundraising efforts aren’t fruitful, that doesn’t mean it was all for nothing.
You’ve still gained a stronger network and countless relationships that will serve you well in your future endeavours. And that’s worth every penny and all the time and effort you invested.
Know this isn’t the end of your fundraising hopes
Investors might not be offering a blank cheque to every founder that pops up in their inbox at the moment. But, raising money during an economic downturn is by no means impossible.
Capital funding dropped by close to 60% in 2008 as the global financial crisis threw the economic world into disarray. Yet, fresh-faced startups such as Uber, WhatsApp, GitHub, and Netflix were all able to raise funds, survive those difficult early stages, and become the multi-billion dollar enterprises they are today.
Entrepreneurship is a constant challenge. But, with the right attitude and approach, no obstacle is too large to scale.
There’s no guarantee that you will emerge from your fundraising endeavours with your funds replenished and future secured. However, at the very least, you will have gained a wealth of experience to support you in your next venture.
