When you’re working to build a tech startup, one of the biggest challenges is raising funds. How you approach this is going to be a big part of everything that happens with your startup. There are different options to raise capital for a tech startup including marketplace investors, crowdfunding and angel investors.
So what should you know if you’re at the point where it’s time to raise money for your tech company?
Be Prepared and Use Technology
What better way to get ready to raise capital for a tech company than you guessed it, using technology? Being prepared for a cap raise is essential. You’ll need to make it as simple as possible for potential investors to do their due diligence. Start with a secure file management concierge service, which can include project management as well as file management. This way, all of the files and documents potential investors need will be quickly and securely available to them.
Along with document and file management technology, there are many other ways technology now makes it easier to find funding.
Some of the ways you might use technology in your capital raise include:
- Generating Leads: There are so many ways to use technology to generate leads and find investors. For example, you might use CrunchBase or other similar databases and networks.
- Cryptocurrency: Increasingly, businesses and startups are looking to blockchain technology as a way to raise money without giving away equity. An initial coin offering or ICO is the primary way startups are using blockchain technology in their cap raises.
- Crowdfunding: The popularity of crowdfunding has grown significantly in recent years, and for a lot of tech companies it’s one of the first places they look to raise funding.
Find the Right Funding Approach
Not all types of funding are going to work for all startups, so it’s critical that you do your research and find what will work for you.
For example, are angel investors right for your startup? Angel investors will usually provide funding along with mentorship when they invest in a company, but it can be tough to connect with them because they sift through so many pitches.
Angel investors, much like venture capitalists, also want an instant return on their investment and they might want quite a bit of control in the business in exchange for funding.
Venture capitalists are similar in many ways to angel investors, but they aren’t for smaller companies as they typically invest at least $1 million. Venture capitalists also tend to favor funding at later stages.
Find the Right Types of Partners?
Just like there are different types of investment options, investors fall into different categories in terms of what partnership might look like. When you’re doing your research, it’s helpful to have an idea of what type of partner an investor is likely to be.
For example, there’s going to be a difference between a new partner and an active partner when you’re speaking to them as potential investors.
In line with this concept is the fact that you need to make sure you’re closely matching your company with the right investors. If you have a software product, you shouldn’t be trying to reach out to firms or investors that deal primarily with biotechnology.
Know the Numbers
It’s not enough to have the numbers available—you really need to have a grasp of what the numbers are, and you need to ensure that they include extensive projections. You need to be ready to show potential investors that your company is going to be able to generate revenue, and you have to link your projections in very specific ways with your growth and marketing strategies.
Some of the things you’re going to be asked about include your milestones, the metrics you’re going to be looking at and assessing, and you’ll also have to be ready to show what you expect to happen in the next round of funding.
Finally, along the way make sure you’re keeping a detailed log of everything that happens. You want to track each and every meeting and interaction because as you’re trying to raise money you’re likely to speak with hundreds of people. You want to know what you talk to each about, who the decision-maker or primary point of contact is, and what your interactions were like. This is helpful not only in your current round of fundraising, but it will help you in future rounds as well.