If you’ve got a pitch deck and a great idea, there’s nothing to stop you reaching out to investors for the capital boost that will get your start-up to the next stage.
Although many start-ups postpone fundraising until seed stage, pitching for investment even earlier is becoming increasingly common.
In this blog we’ll explore the main stages of funding for start-ups, how to tell when your start-up is ready to approach investors, and how to prepare for a successful early stage fundraising round.
What are the traditional funding rounds for a start-up?
The main stages of funding for a start-up are generally considered to be pre-seed, seed, series A, series B, and series C.
This is how the stages break down:
Seed and Pre-Seed funding
Your start-up is looking to turn a great idea into something that exists in the real world. Funds raised may be used for marketing, product development or key hires.
Your company has a strong track record and is looking to increase revenue. At this stage you may be looking to expand your customer base or add new products or features to your line.
At this stage your company will be looking at significant expansion. This might mean growing the team, your customer base, or expanding into new locations.
By this stage your company is likely to be highly successful and investors will be looking for a substantial return on their investment. This round of funding may be used for acquisitions or expanding into new markets.
Series D and beyond
Sometimes companies fundraise beyond series C. This could be because they are seeking a final boost to increase their valuation before IPO stage. It may also be because companies are increasingly staying private for longer.
Why is early stage investment becoming more common?
Seed funding is generally considered to be the first external funding stage for start-ups, but many companies will need additional funding to get to this point. This is known as pre-seed funding.
Traditionally, founders have needed to source capital from friends and family, or use credit cards or savings at this pre-seed stage. However, this is starting to change. Over the last few years, investors have started to pay more attention to early stage start-ups. By investing in an idea earlier, they hope to get a better stake in the company’s eventual success.
Signs that your early stage start-up may be ready to seek capital from investors:
- You have a strong team of founders with relevant experience and plenty of drive
- You can demonstrate product/market fit
- You need capital to develop your prototype or MVP
- You’re ready to make key hires
How long does early stage fundraising take?
The fundraising process is time-consuming and requires effort. If you’re a first-time founder, you can expect a seed or pre-seed fundraising round to take between six and nine months (subsequent rounds are likely to be shorter).
Even at pre-seed stage you can strengthen your position by managing your runway effectively. Make sure you have enough capital to keep going while the fundraising process is taking place and plot out when you’ll need the capital to land in to advance your company to the next stage.
You can also prepare for the long haul by assigning one co-founder to manage the fundraising side. Having one person assuming responsibility will ensure you keep the process moving forwards in a focused way.
Or you could look at getting external support — at Pitchdrive we look after the fundraising process for early stage start-ups so founders can get back to talking to users and growing their business.
How to approach an early stage fundraising round
Looking for external investment at seed or pre-seed stage is slightly different from other funding rounds. Here are a few things to consider:
Focus on relationship building
At this stage your start-up is less likely to have a strong reputation or sales figures to impress with. Investors will need to connect with your mission on a personal level.
Trust is key. Use your networks and keep reaching out for introductions, especially from other entrepreneurs. Investors are more likely to take a risk on a company they have a personal connection with.
Do your research
Not all investors are right for an early stage funding round. Angel investors, pre-seed/seed funds and incubator or accelerator programmes are a good bet as they will have plenty of experience with early stage start-ups.
Once you’ve got a list of possible investors, narrow it down. Target those that have experience working with companies similar to yours.
Have a good team on your side
A solo founder is less likely to attract investment than a team of founders with complimentary experience. If you’re great with the business side, having a strong technical co-founder will provide a good balance of expertise.
Showcase your potential
Having a clear vision and being able to demonstrate it is critical. You should have a good grip on your product/market fit, key differentiators and how you plan to grow the business over the next five years. Then you need to communicate all of this effectively and concisely.
Research has shown the average time investors spend reading a pre-seed pitch deck is just 3 minutes and 21 seconds. That means your slides need to be clear and impactful. Focus on the details your investors will want to know.
Don’t be afraid to go back to the drawing board
Early stage fundraising may require getting in front of a lot of investors, but it’s more than just a numbers game. If you’re pitching to a lot of people who understand your market and are still failing to secure investment, it might be time to revisit your approach. Get feedback, reposition, then try again.
Whatever stage you’re at, persistence is key. Early stage investors may see hundreds of pitches a year, and will only invest in a small percentage.
Keep refining your approach without compromising your vision, and don’t let being at an early stage hold you back from seeking the funding you need.
If you’re looking for support with raising investment for your early stage start-up, Pitchdrive can help. You’ll get access to expert guidance from industry experts, data-driven insights to help you progress, and a platform to track your start-up's progress. We’ll also help you get to your next tipping point by connecting you with our investor network and the Pitchdrive Fund 1. Get in touch with the team today to find out more.