When new startups read news articles about other startups getting funded and achieving success, it can give them an unrealistic sense of confidence around how easy it is to raise capital. Unfortunately, the reality of raising capital is much more complicated than what’s often portrayed in the headlines.
For starters, there are many different types of funding sources available — from venture capital to angel investors to crowdfunding — each with its own set of requirements. Some fundraising models are not suitable for some types of businesses or companies at different stages of growth. It’s also important to consider how much money is needed, which investor suits your needs best, and how you’re going to be able to adequately manage the funds once received.
The process of raising capital can also take longer than most entrepreneurs expect. Before any money can be raised it’s necessary to assemble a quality pitch deck that speaks to investors’ interests and lays out strategies for future growth. Then comes the tedious task of finding potential investors and convincing them that they should invest in your business or product idea — this can involve numerous conversations with multiple individuals before any agreement is met upon. It’s no surprise that even after all that effort, many deals still end up falling through at the last minute due to unforeseen issues or changes in terms.
Raising capital requires hard work and careful planning; reading news articles should only serve as inspiration rather than giving founders a false sense of security when it comes time for them to make their move in the entrepreneurship world.
When raising capital, it’s also important to consider whether a company or product is ready for investment. Too often entrepreneurs don’t have the necessary resources or processes in place to make sure potential investors are getting the most out of their money. It’s not enough to just have a great pitch deck. Companies need to show that they have a working business model and that their product has been tested with customers, and prove product market fit among other things. Investors will be more likely to invest if they can see that there is an underlying strategy for success as well as a clear roadmap for how the funds will be spent.
Additionally, there is no one size fits all approach when it comes to fundraising. Different types of businesses require different types of funding sources and strategies tailored specifically for them. For instance, some businesses may opt to pursue angel investors due to their relationship-oriented approach while others may prefer venture capitalists because of the often larger cheque sizes. Founders need to have an understanding of both potential risks and rewards associated with each option before making final decisions on which ones they should pursue.
Last weekend I listened to a great episode of a podcast, that I often listen to, called 20VC. In this episode, the host (Harry Stebbings) interviewed Cliff Obrecht, one of the co-founders of Canva. In the episode, Cliff shared that they had already proven that they had a successful business called FusionBooks, Australia's leading school yearbook platform, and they still struggled to raise capital. They said it took both Cliff & Melanie, another co-founder, over 100 pitch meetings with VCs and over 6 months spent in San Francisco.
Overall, startups should be careful not to get too caught up in news stories about successful founders who had seemingly effortless paths toward success; in reality, most businesses go through numerous iterations before raising funds successfully. Knowing this ahead of time gives entrepreneurs greater control over their fundraising timeline and expectations by giving them insight into what kind of resources and processes they’ll need in order to succeed.
