Every startup suffers from a cash crunch sooner or later. A founder is aware of the ticking time bomb and can sense failure as a distant possibility. Time and again, a cash out situation puts the founder in a difficult position. Due to the lack of cash, many founders have had to face humiliation and public judgment. This is the reason why raising a round of capital feels like a relief every now and then. Every new round sets a bar higher for the next round, with an aim to reach higher profitability. Existing investors provide a certain level of comfort that they are likely to have your back in tough times. But then, you never really know. Snapdeal had investors and the founders were expecting them to help save the company, but it was in vain. The ultimate decision is always on the investors and many a times, they decide not to interfere during a cash crunch. With the falling amount of cash, every decision becomes crucial and the founder starts looking for ways to raise cash while suppressing the reality that they may not.
It is important to remember that fundraising is not an easy task. Very few founders have had it easy raising funds. The basic nature of raising capital begins with “nos”, the investors might not even evaluate your company and reject your proposal. It is important to not lose confidence here. In the game of fundraising, only a few reach the top. The ideal time to begin with fund raising is as soon as your business picks up, do not wait for the cash to fall below the normal amount and then go looking for founders. With the lack of cash, you begin taking short cuts in funding and do not meet enough potential investors. You are also not left with enough time to come up with another plan if fundraising proves difficult.
Putting serious efforts in the planning always helps. It is advisable to research the firms you are approaching, only having a list of VCs will not help. Research about the other deals they have done in the past, the amount invested, the partners they have and what kind of deals they are keen on. If you are a part of a strong entrepreneur network, you can get a sense of things. You can plan out whom to meet first and how to put your idea forward. Do not go ahead for fundraising with a few months of preparation, plan your every move before you join the game.
Prepare a pitch before you approach and test it. You can connect with your existing investors and present your pitch. The first few pitches will not be perfect, which is why you need to test yourself before you approach the VCs. Avoid the phone call and video conference meetings, it does not work in the long run. Instead, show up in person and follow up from time to time. After the first meeting, persistency is the key.
VCs have mastered the art of saying “no”. If you get a “no”, do not be discouraged, ask them for a constructive feedback. Tell them you understand their opinion and want to learn so you can improve your pitch. The feedback from VCs will be very important for your next pitch. Use back channeling effectively. After a feedback on how to improve, you can use back channeling to help your cause. You can ask fellow entrepreneurs to put in a good word for you, and this will go a long way.
Lastly, remember that funding is binary-if big names turn you down, you can contact the second tier investors and keep going. Expand your list and connect with new investors. All you need is one yes to turn around your business!