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As a founder or CEO of any start-up, you will find that raising capital is, in most cases, a major challenge, requiring a significant investment of time. Unless you have a clearly defined business plan and strategy ahead, you are going to end up wasting precious time that could have been generating value elsewhere.
To help you achieve a positive funding round, we spoke to Tommy Palm, the long-time Swedish gaming industry veteran, co-founder and CEO of Resolution Games and one of the brains behind the global successes Angry Birds and Candy Crush Saga. Tommy has not only played a key role in developing several companies, but he has also spent time in the investor chair.
Preparation is crucial for securing your business funding – one of the most time-consuming and effort-intensive activities in the start-up life cycle. As most entrepreneurs overlook the time it takes to obtain external capital, they often find themselves in distress when getting in front of an external investor or signing an agreement. This increases the changes of ending up with an undesirable financial partner or agreeing to untenable business terms.
To ensure a more positive outcome of the funding round, you need to do your homework. Make sure that you know what you want, build up your business case in an understandable manner and outline the reasoning behind your choices. This will make it easier to narrow down which investors to target and what to ask for.
How to prepare for a funding round
When gearing up for a funding round, Tommy Palm boils it down to the following six recommendations:
1. Do your homework and be able to communicate it
Preparation is key, and don’t forget to be precise. The more thoroughly you have done your homework, the better investors will understand your business case, needs and reasoning. Share your business case in a convincing way, building momentum to make them feel that they can’t miss out on your offered opportunity.
Don’t be afraid to be transparent. The more you involve your potential investors, the more secure they will feel about your offering. For instance, if you have a small opening and are looking for multiple investors, communicate it to the external parties involved. They need to know what you want them to invest in. For example, you can say: “This is the amount of money we are looking for, and to fill that capital need, we are looking for three investors.” That way, they will know the rules and can be part of the game.
2. Don’t be egocentric
Listen to other business pitches. Imagine yourself as an investor. How did the company perform? Which aspects of the presentation made a compelling business case, and which aspects were weaker? Would you invest in their business? If not, why? What would be your follow-up questions after their presentation? Take the insights you gleaned from other business pitches to fuel your own business pitch.
3. Do a test run
Don’t conduct your “best” investor meetings at the beginning of your funding round. Instead, test your business pitch in front of investors that you are interested in but may not be your optimal target. Did you presentation answer all of their questions? If not, go back to the drawing board and develop your pitch. Practice your developed pitch, and then present it to the dragons you are truly after.
4. Don’t put all your eggs in the same basket
It’s never good to depend on a single investor. If you can get multiple investors in the same round, you can reap significant value from their additional knowledge and protect your business from unforeseen external events.
If you are in the fortunate position to choose between multiple investors, view it as a recruitment process. What characteristics and offerings does each investor bring to the table? Remember, external investors are often more than just a capital source. Apply the term smart capital when deciding whom to take onboard. Make sure that your chosen investors possess the qualifications, connections and capital that your business needs for the road ahead.
5. Don’t get discouraged by failures
The old adage is true that you often learn more from your failures than your successes. Don’t get discouraged by failure. You will meet people who are not going to believe in you. When you get that response, think about it as useful feedback rather than getting defensive. Listen and reflect on how you can improve your business case.
6. Don’t think of it as the last round
It can be useful to not think about the current funding round as the last. Often, businesses inexperienced with raising capital will think: “If I get a huge amount of money in the bank, then I’m safe and good to go.” However, seed A and B rounds exist for a reason. So, determine where your business is today and what financial means are needed to reach your desired destination.
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