Opinion
15 smart questions before seeking funding for your start-up
African investor Eunice Ajim, a daughter of Cameroon, set up and investment company earlier this year with $10 million in. capital. More than 2000 entrepreneurs applied to her for capital – only four were successful.She poses the questions that all of you entrepreneurs should ask yourselves before asking for capital !
- When will I need additional capital?
Build a long-term timeline to answer the question, “When do I anticipate needing additional capital to reach the next milestone?” In B2B SaaS, there are pretty well-defined thresholds for the company stage that an investor looks for.
- What type of capital do I need?
You must know what type of capital you need and how much. Additionally, you need to identify the target audience that you will raise to grow and scale your business strategically.
- Why am I asking for the stated amount?
You should be specific about why you are asking for the stated amount – is it to hire a key leader, build out your marketing function, or invest in research and development?
- Which type of investor will help me reach my goals?
Too often, entrepreneurs will take money because it’s available. Investors should bring more to the table than just funds. The best investors bring their networks, time, and/or operational expertise.
- Do I need an accelerant or an enabler?
When founders pitch me to invest, I first ask, “What area of your business is on fire so that you just need more gasoline?” Funding should be an accelerant, not an enabler.
- How much decision-making power do I want to maintain?
If you want to scale quickly and are the type of founder looking for support to steer the ship, seeking capital may be the optimal route. But if you want to control the brand’s growth, you may want to delay raising VC.
- How will I bring value to the investor?
In a world of finite resources, founders should put themselves in investors’ shoes and proactively answer this penetrating question: “How am I uniquely capable of adding value to this opportunity?”
- What else must an investor bring to the table?
Other than capital, what will an investor bring to the table to help grow my startup – partners, operational expertise, marketing expertise, distribution expertise? Are they visionary?
- Is this investor aligned with my mission?
Don’t take money from people who are not enthusiastic about your mission. If you want investors in your corner, they must be stoked about what you do with the money.
- Am I open to learning from my investors?
Are you open to learning from others? Raising outside capital is not the best option if the answer is no. The magic of monetary capital is that combining it with intellectual capital can result in exponential growth.
- Am I willing to have an external influence on my business?
When investors put their money into your startup, they’re naturally concerned that you’re doing the right things to protect and leverage their funds. This can and frequently does lead to conflict.
- Am I ready to ‘marry’ an investor?
Raising capital is akin to getting married to an investor for an unknowable time, in sickness and health. However, getting married to the wrong investor at the wrong time could cost more than the funding is worth.
- How will I spend the capital raised?
There is no free money. It always comes with strings and expectations, so you must ask yourself if this is the right time. Are you raising money to scale your product? If the answer is yes, then you need to have a plan.
- What is the end game?
Knowing your end game and what you want for your startup is essential when seeking capital. You are signing up to turn the investment into rapid growth & work toward an exit; an IPO, or an acquisition, which is when your investors will get their return.
15. Is now really the right time to raise funds?
Founders must remember that they will be diluted by ~20% in every round and need many rounds if they want to scale into a huge company. Early-stage founders’ mistakes in raising money can cost them ownership in the future.
