4 Top Tips for Funding a Tech Start-Up
Raising capital for your business is the hardest yet most important task for any young start-up.
Funding isn’t an overnight task; you need to have a solid plan in place to ensure that you can raise the money needed to scale the business. Here Arvi Chana, CFO at Quantexa, drops his top 4 tips on funding your tech start-up.
It’s a fine line between over-projecting and falling short which could leave your company in disrepute. Each company’s funding journey is unique, but these steps can help you prepare your business for financial success.
Raising money isn’t just about getting investment in your product, it’s also about the people. Venture capitalists don’t want to invest in a CEO who is the centre point for everything as it’s impossible to see any scalability. Instead, they want to see how the team can grow from a £5m to a £10m valuation together through your board and management team. People matter just as much as the technology, so it’s fundamental that you hire experts across each division of your business and play to their strengths. Clearly showing the areas of expertise in your business and the people leading the growth of that area will help you attract investors.
Clear investment plan
A transparent investment plan is vital for success. Creating a roadmap of your product and your projected fundraising timeline will make sure that everyone is working towards the same goal and, most importantly, at the same pace. Once you have shared this plan with your potential investors, make sure you know your numbers and you can maintain an open communication with them. The most important part in creating an effective roadmap is to not overpromise and end up underdelivering on those forecasts. Circumstances may change and if they do, you need to be honest and transparent about the reasons behind these changes and how you’re going to manage these to get your ship back on course – investors will walk away if they feel they can’t trust you.
Manage internal spending
As a start-up, money can be tight and when you’re raising an investment round, spending is under intense scrutiny. Set clear budgets and don’t be afraid to ask questions – if you’ve set a budget and it’s changed, why is this so? Blindly following a strategy because you said you would is poor management and could damage the company in the long term, as well as risk losing the investment altogether. As a CFO or Financial Director, you need to constantly challenge the CEO and reign people back in if they start to creep away from the budget. An effective financial lead in the company has the rigour to put a solid plan in place and question those who are deviating from this strategy.
If you put these procedures in place at the beginning, it will encourage employees to maintain good behaviour and respect the business plans.
Listen to your board
When appointing your board, you need to think tactically as to who you select and the value that you’ll get from their advice. Your board will have a wealth of experience that will help guide you on your journey to a successful fundraise. Working together with your management team and your board will ensure that there is a clear goal as well as progress, and as a result, investors will put trust in your company’s decision.
Preparing your business for a fundraising round is a long journey that requires a cohesive and dedicated team. A financial director or CFO of a start-up must ensure that firm processes are put into place early on to make sure that the company achieves its investment goals, but also respond quickly and effectively to any sudden changes to the plan. These tips should help you guide your company to a successful fundraising round and continue on your path to growth in the long term.