Investors suggest early-stage founders to ask these 7 questions before fundraising
How to impress investors from all over the world and get funding through digital meetings? We understand that the pandemic is not making things easier for you. All talents and founders need to connect, interact and network, even when restrictions are preventing gatherings.
But we have cracked the code to overcome the challenge! During the first half of the year of 2021, Skåne Startups has met with experienced investors who told us exactly what to do in this situation. We hosted fireside chats to dig through their minds and unveil funding hacks in pandemic times.
Understanding investors’ viewpoints is a great way to upgrade your game. Raising capital is always tricky but when you know what they are expecting from you, you can prepare to knock their socks off.
We have chatted with highly successful investors in diverse industries to condense their insights into this easy guideline. Here are 7 important questions that the investors suggest early-stage founders to ask before preparing to raise venture capital.
1, Is the market ready for your solution?
The tech startup community knows all about being groundbreaking. They are at the forefront of developing innovative products that change people's lives.
However, understanding the current market is critical for all startups. Some products and services are highly disruptive and have the potential to make a big impact, but markets are not always ready for these technologies.
“You can have the best technology in the world and if the market is not ready for it, you have to educate the market and that is hard and expensive. It takes much longer and much more money than you would ever anticipate”, explained Matthew Scherba, Investment Director at Tern Plc, over our compelling encounter.
For over 25 years Matthew has founded, run, scaled, and invested in companies across many growing tech areas. In his experience, the difficulty at entering the market makes great companies lose funding opportunities. That is why it is essential to see and understand the broader market landscape when designing the company’s strategic plan.
He stressed his point by sharing examples from today's tech industry. “Look at some key energy projects. These are big propositions that require government and regulatory approval, which take time and effort and nobody can predict how long that is going to take. So timing and failure related to timing is sometimes a key factor”.
While working at Tern Plc, Matthew specialized in developing a strategic commercial mindset that had helped him to raise a strong portfolio in the UK, Europe, and the US. You can learn more about his vision and the venture capital firm here.
2, Do you know well enough about your competitors?
Apart from deeply knowing your product, it is essential to identify the weaknesses and strengths of your competition.
“It’s very common to believe that your product or service is unique, but most likely there are other companies trying to solve the same problem as you”, explained Leon Ge, the Principal & Head of Asia Initiatives at Partech Partners, a leading global venture capital firm with $2bn AUM and a record of +200 investments in 5 years.
You must have a clear picture of what’s in the market that can compete with your offer. This way you will be able to recognize the areas in which you must work to improve. According to Leon, it’s always a good idea to have a general picture and an exhaustive list your competitors when you pitch to venture capitals.
As an investor, he is usually interested in asking about the general state of the market and it is important that the founder can support the business plan with detailed data on competition.
Partech Partners' interest in linking with strategic entrepreneurs leads them to seek founders who stand out for their analytical thinking. That’s why you must create thorough research and evaluation about the industry.
If you’re eager to know more about them, watch the complete discussion here.
3, Can you become an inspiring storyteller?
The primary tasks of entrepreneurs are based on their abilities to connect with others and create connections that allow the growth of their projects. Especially, founders must be people with great capacities to influence and lead others to believe in their ideas.
Sofia Dolfe, Principal at Index Ventures, believes that founders should develop good storytelling skills, to motivate key partners and excite others with their startup dream. As a strategic leader, you should be able to motivate people along the way to believe in your idea as well.
Along her business practice, Sofia has discovered the importance of being convincing about the story behind your enterprise. It’s necessary to influence your investors (who should be there in the ups and downs), to attract talents (to engage to work with you), and the customers (to make them love your product and what it stands for).
“I think it is frequently undervalued how crucial it is to inspire and sell a dream and a vision, especially when things aren't going as smoothly as planned”, she explained.
In addition, Sofia said that you should be aware of: What do you stand for? What is the meaning of your product? How do you promote yourself? How are you differentiating yourself from the competition?
This asserts the philosophy of several firms, including Index Ventures, which decide to invest in valuable teamworks and their ability to persuade with the unique perspective of their business. If you want to know more about this venture capital that has invested in companies such as Dropbox and Slack, click here.
4, Are you aware of innovative solutions in the emerging market?
Entrepreneurs should be open-minded to new opportunities. This requires founders to learn from novelty solutions from all over the world.
Tatsuro Shimada, an angel investor, suggests that founders keep their eyes on what is emerging in Africa and Latin America. Having many challenges to face has made these markets true hubs of creativity and innovation.
“Looking ahead, there are great entrepreneurs who are achieving a lot with few resources. Knowing and learning from their business models could give new ideas to entrepreneurs from all over the world”, stated Tatsuro.
Being an entrepreneur himself, Tatsuro has traveled the world to marvel at ideas and extraordinary people who are creating transformative projects using technology for the benefit of society.
In his global adventure, he has discovered the great potential that is being developed in these regions and motivated all talents to be inspired by the ventures arising there. Learn all his insights during the fireside chat here.
5, What is your impact?
To stand out in business it was mainly needed to have a strong idea. But now enterprises are competing globally and must have an extra edge to stand out. This is why startups presenting innovative and value-driven products are getting investors' attentions.
Rebecka Löthman, Investment Director at Industrifonden, believes that more than ever VCs are looking for business opportunities with the ability to have a positive impact on society.
This talented businesswoman has developed an outstanding career investing in transformative business models related to deep tech/ML. “We are seeing a strong movement among investors willing to commit to the development of products or services that transform the world in a positive way”, she said.
It is clear that this is a hot topic that is being talked about a lot and that is creating a new momentum in business. Thus, this solution-driven approach adds value to your business and improves the chances of finding funding.
“There are a lot more climate-tech focused funds coming up in all of Europe. I see funds that seem to genuinely want to make a difference”, stated Rebecka.
Indeed, Industrifonden is one of the most prosperous VCs in the Nordics that has established a portfolio focused on climate-conscious companies. Learn more about them here.
6, Are you ready for VC investment?
“I think the first question that you need to ask yourself is whether you really need to raise the money”, is YingYing Huang’s opinion regarding founders' funding mistakes.
The current Investment Manager at Telia Ventures considers that sometimes founders don’t assess their startup stage and that leads them to rush to ask for capital from VCs. Raising capital from VCs brings a lot of expectations and responsibilities from the partner. Make sure that the team, the product, and the startup are ready for this long-term commitment.
YingYing explains that detailed previous inquiries are fundamental: “Do you really need money right now and how much do you need? There’s a lot of questions you need to consider before you actually reach your hands and feet into the fundraising game.”
This female entrepreneur has a remarkable career in evaluating and investing in consumer tech startups. As part of the Telia Ventures team, she has specialized in investing in early-stage startups in the Nordic and Baltic regions.
If you want to know more about them, read this article here.
7, Did you start to build relationships globally?
If you are a startup based in small cities, it’s possible to get funding outside the traditional tech hubs such as Berlin, London or Stockholm.
First of all, don’t be afraid of the distance. During the pandemic, we have experienced a growing acceptance of online meetings, which means that we are connecting easily around the world.
Geographical distance is no longer an excuse to stop you from reaching out to investors of VCs located in different regions. Michael Rager, Manager Director of Growth Equity at DTCP, thinks that you don’t need to be in a hub to attract investors and create a lot of values.
Your goal now is to use virtuality to your advantage and start connecting with several communities that you haven't considered before.
“How do you actually attract international VCs easily? The first thing is to network. I think this is what we're doing here. Meet people, engage with those that are outside of our local region, build up a relationship and have regular exchanges on that”, said Michael.
This experienced investor, who has helped to thrive companies across Europe, believes that distancing restrictions can be a strong point for local founders.
During the fireside chat he stated that “one consequence of COVID is that building relationships with founders and deal sourcing from the VC perspective is now easier. This is leading to the fact that it is irrelevant where founders are at the end of the day”.
As part of the team at DTCP, they see a lot of potential in searching for talents around the world and creating global connections. “We have a global network of large enterprises where we can try to open doors, speed up those processes occasionally, or do business with our LPs”, said Michael.
If you’re interested in getting to know more about him and the firm that has raised more than $1.0bn from corporate and institutional investors, check out our discussion with him here.
If you’re a founder eager to be part of our events, subscribe to our newsletter to get updated tips and advice from global investors and founders.