Guest author: Alexandre Ikeni, Startupbootcamp InsurTech Investor in Residence.
Raising money for a startup in any industry is no easy task. Alexandre Ikeni outlines five fundraising tips for founders.
How to hunt for investors
Use networking events or conferences to meet with business angels, founders or mentors and get them to introduce you to at least two people. Introductions will get you a long way to build relationships from people you trust.
Once you have increased connectivity with investors, take time to sort, group and sequence your target investors right at the beginning. Create groups reflecting a variety of priorities. Do not focus all your top priorities in the first batch of investors. Even if you’ve rehearsed your pitch, you’ll continue to refine it, so diversify your schedule to account for that learning curve. It is going to take some time to perfect the actual pitch.
Schedule meeting dates right next to each other. Investors tend to follow similar internal decision processes. This will help maximise the number of offers you will receive and the opportunity to create some competitive tension.
Finally, as you will realise quickly you will need to speak to a lot of people and have to deal with a flow of negative responses. But think about “No” as a good thing, make sure to ask for detailed feedback and use it to improve your pitch and equity story. No matter how good is your idea your pitch is likely to be much better including feedbacks gathered along the way. Successful founders learn to take criticism as an opportunity to prove people wrong and keep going!
How to know when you are ready to raise
Do your homework and figure out how much your business needs in terms of development (R&D, IT, marketing & sales) to achieve your growth targets for the next 12/18 months. This is critical to rationalise the ask in front of an investor.
Whether this is for executing on POCs, converting pilots into clients or successfully scaling up operations, time your rounds with marketing successes and key achievements so you have good news when you follow up with investors. This will put you in a strong position to explain why you need the funds.
Anticipate your needs to start conversations with investors well ahead so you can manage the likely situation of not closing a round in 2/3 months but 6/7 months as those things tend to take much longer than initially planned.
While every VCs have different internal processes, this reflects the minimum time for investors to test the idea internally, start building a case to present to their investment committee including detailed sector research, answer specific questions from Managing Partners or speak to industry experts within their networks. This is likely to delay the process to get formal approval and therefore to be able to issue a term sheet. Start conversations early and keep VCs updated of your progress may help you to get a quicker answer than starting only when there is a need.
How to judge if an investor is right for you
Do your research and focus on investors who invest at your stage in your region and with an understanding of your sector and technology. It is fine to keep a long list of names from a networking perspective but think how to prioritise names between immediate discussions and long- term relationships. The latter may still give you relevant advice however from a time management perspective you should focus on investors actively considering your profile.
Scan investors’ portfolio for similar business models and figure out how they can support your strategy from a sector expertise, connectivity or operational perspective. Do they have expertise in growing companies in different markets or multiple regions? Is there any synergy to get connected and work with one their seed company? Can they help you get follow-on funding?
It is a two-way relationship so make sure to ask investors what they can bring to the table. Make sure to address those questions upfront and keep them accountable for it.
How to approach investors meetings
Do not underestimate the impact of an outstanding deck and delivery. Make it concise, avoid a technical vocabulary but explain in simple words the key benefits of your solution. This requires most of the time providing some details on the underlying technology and operations that enable you to get to this result. This helps investors form a view on the uniqueness, competitive advantage or scalability of your business proposition. Think how to strike a balance between protecting your ideas and IP and sharing enough to get investors hooked.
Systematically anticipate key questions investors may have. That way you will be able to address up- front investors’ key concerns. This means you have prepared and rehearsed ahead of the meetings with a long list of issues putting yourself in the shoes of an investor.
Adapt your pitch based on the expected knowledge of the investor. Some will be generalists, considering venturing into a new segment, other will have already invested in your space. Every investor comes with a different perspective and will certainly try to leverage his or her experience to form a view. Keeping it in mind means that you invest time to educate some investors or bridge their experience to your particular area of focus so to make sure they look at it with your lens.
Suggest how this can be a good fit to their portfolio. It shows that you have done your homework scouting for the right investors for your business. Besides this may also give you a sense whether the conversation will have legs or if too early/too far from a VC core expertise.
Finally, act like you have done this before! Be confident thanks to your preparation and networking with other successful founders so you know what to expect.
How to agree terms
Get advice from people who have knowledge of negotiating investment terms such as other founders, financial advisers or lawyers.
Be prepared by familiarising yourself with standard VC terms and become aware of what is standard. This will help you compare term sheets and spot road blocks or things to avoid. Try to be as plain vanilla as possible. A simple term sheet is likely to be the best alternative and will get you to close your round faster.
For the valuation discussion, it is key to be well prepared given the wide range of expectations from various sets of investors in different regions. That means to be able to test it with people you trust and rationalise it based on your Unique Selling Points and compare it with recent deals from peers and competitors.
Finally consider the structure of your governance especially the addition of key independent experts or evangelist mentors joining your advisory board with potentially a small amount of equity incentive. This brings important industry or operational expertise into the company at an early stage and may be helpful looking forward to your next funding round.
Startupbootcamp InsurTech Investor in Residence
Alexandre Ikeni was previously a FIG banker with Bank of America Merrill Lynch and HSBC looking after a broad range of Financial Institutions including Banks, Insurers and Fintech companies in Europe. More recently, Alexandre has been advising several Insurtech start-ups on strategy, business development and fundraising considerations with Angels, VC and CVC funds.