Must-haves for your startup fundraising strategy

Fundraising is key for all startups to nail down. Yet, it’s a challenging process because of the long list of do’s and don’ts that you must consider, from pitching to networking to planning.

Likewise, because fundraising has many moving parts, you have to focus your efforts tactically. This is why a strong fundraising strategy is vital. But having a course of action is only the beginning—you’ll still need to make sure you include the necessary elements to maximize your chances for fundraising success. 

This is where we step in. In our article, we’ll cover:

• Why fundraising matters
• Consequences of fundraising poorly
• What your fundraising strategy must have
• A free checklist

Importance of fundraising

Startup fundraising looks straightforward on paper: you raise capital for your startup. And while this holds some truth, it only scratches the surface of why fundraising is important:

Growth

It shouldn’t be surprising that the biggest importance of fundraising is to sustain the growth and development of your startup. From scaling operations to building stronger teams, without capital, everything would be left dead in its tracks.

Guidance 

Though not applicable to sources such as crowdfunding, fundraising provides the opportunity to receive guidance from experienced professionals. For example, successfully fundraising with venture capital firms, banks, and angel inventors can give you access to invaluable expertise.

Credibility

Cash is king in the fundraising world. Securing funding from reputable investors and firms demonstrates to other potential investors that your startup should be taken seriously. This can strengthen your brand's reputation and give you increased visibility, opening doors to new investment avenues that may have been previously inaccessible.

Consequences of poor fundraising

While the upsides are many, there are potential consequences to be wary of in the case of unsuccessful fundraising:

❌ Stunted growth: Poor fundraising will hinder your startup’s growth, regardless of what stage you’re at. Whether you’re planning to expand your team or prepare for an acquisition, without the necessary resources, you won’t be able to realize them.

❌ Decreased competitiveness: Not achieving your goals and milestones due to a lack of capital can negatively impact your startup. The inability to complete key activities like product development can result in you falling behind your competitors and, ultimately, losing your customer base.

❌ Insufficient runway: Having insufficient capital means that your runway is limited. This could lead to a lack of growth for your startup, making it difficult to sustain your company, employees, and mission. At worst, it could even result in your startup having to shut down.

5 fundraising strategy must-haves

Fundraising strategies outline your course of action in securing capital, covering the whys, whos, whens, and hows. But beyond the essentials, there are a number of must-haves every strategy must include:

1. Investor research

No matter how well-planned and written, without backing from in-depth investor research, a strategy is as good as fiction. Investors are the prime target for any fundraising strategy, and knowing as much as possible about them is crucial for fundraising success. 

Early on, dissect their profiles – what industries do they prefer? How have their past investments fared? How much appetite for risk do they have? What do they expect in return? And above all else, are they the right fit for my startup? For example, if you're at Series C and want to raise funds in preparation for an IPO, it would be ideal to find investors who have already worked with startups with similar goals in terms of fit.

2. A diverse team

Having a diverse team to support your startup (e.g. race, gender, education) is an essential must-have for any successful fundraising strategy. With diversity comes a wide range of opinions and perspectives, all of which can enrich strategy and approach issues with an eclectic mix of viewpoints.

In fact, investors are increasingly looking for startups that prioritize diversity. This demonstrates that the startup values holistic thinking in its decision-making and aims to make a positive social impact, so it’s better equipped to address the needs of a broader range of consumers.

3. Good timing

The economic landscape is constantly in flux, and failing to stay abreast of recent developments can be a recipe for disaster. There is certainly a right and wrong time to fundraise, and timing your efforts correctly can make or break your entire fundraising strategy. 

For example, during dislocated or down market phases, traditional sources of fundraising such as venture capital firms may be more reluctant to contribute capital. This means that there will be less capital available for startups, and investors may demand lower valuations than they would in more favorable market conditions. 

As a result, the supply of capital is heavily discounted during these times. Therefore, it's crucial to adapt your fundraising strategy according to the market, which may involve exploring alternative sources such as crowdfunding and accelerators.

4. The right amount

Your fundraising strategy should encompass setting realistic and accurate targets since your entire strategy is based on those figures. It should be carefully calculated according to your startup’s needs and account for what you are willing to give up in exchange for capital.

If you raise too little, you might run out of capital before hitting certain milestones, effectively leaving your startup's operations dead in the water. On the other hand, if you raise too much, you might find yourself giving up too much equity in exchange for bloated budgets and impossible targets set by investors. All of these factors hold the potential to negatively impact your startup's growth prospects.

5. Foresight 

Fundraising is a challenging process, and with countless factors to consider, it's understandable if startups tend to focus more on immediate details rather than planning ahead.

However, your fundraising strategy must be able to accommodate both future fundraising needs and worst-case scenarios, such as legal issues and sudden investor pullouts. 

Startups must constantly assess their fundraising options well before their runways start to get tight. Desperately trying to raise capital only when emergencies arise often gives the upper hand to investors, who might demand more downside protections and bigger discounts.

Planning for fundraising

Fundraising is a complex process that must, above all else, be guided by a solid and well-rounded strategy. Whether you’re trying to secure funding from accelerators, hedge funds, or even angel investors, your fundraising strategy must be airtight to maximize your chances at fundraising success.