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How to Raise Funds: Strategy, VC Funding and Valuation

Finding financial resources is part of every company’s life. Whether you have already started building an idea to a proof of concept, or have taken a product to the market, or acquired new clients, or even sustained your growth, turns out you will likely need external funds. In a nutshell, that’s what VC funding is all about by providing you the funds so you can execute your vision.

Nicolas El Baze, General Partner @ Partech Ventures, and Alaa Ismail, CFO @ EarlyGrowth Financial Services led Tuesday’s workshop to share their views and advice on the different steps of that process.

Target right

Angel, Seeds, Series A, B, C … What looks like a very common and unquestionable pattern might not be the ideal one for you. Fundraising is a stringent process you have to go through and should be carefully handled, instead of undergoing it.

According to Alaa, the first step is to clearly identify your needs. Those needs are very different depending on how advanced is your company. Creating a PoC will require way less money than bringing a new product to the market.

You also have to think about funding from an operational standpoint: Wages, offices, and consultants are very costly, and could influence on the type of funding you’re looking for.

Nicolas El Baze mentioned VC funds like Partech, seed funding exists to answer one simple question: Are you able to reach that mountain in terms of growth? Seeds generally give the company 12 to 18 months to answer that question.

Consider each side of what a funding implies to: how it affects your valuation, how much will you get diluted, how much control will be transferred to your investors?

In order to help you visualize this process, we recommend you know how you should raise funds and when you should set milestones for your game plan. This will help you bring a clearer vision of the funding of your company. And as you will see later on, this vision is also a key point when approaching investors.

Once you know what type of funding you’re looking for, targeting the right investor is a breeze. Make sure you captivate their attention and prepare accordingly. However, fundraising is not a one way process: you need to be selective and maintain a strong influence on your company. This will help you make wiser decisions. You may ask yourself, Where is my investor located? Is he/she familiar with my industry? What is the market approach of the companies in his/her portfolio? Is it compatible with mine? Use your network to determine who could be the best person for your company.

Do your homework, be patient

After targeting the right investor, the following step is how to approach him/her. You will need to be 100% ready and 100% sure that he/she will be the right fit for you and your company. We won’t explain you the art of pitching in this article since it is so complex and subtle, but we will focus instead on one various key point that is revenue projection. A well thought revenue projection is far from being sufficient to seduce an investor, but it’s a necessary one. First, an investor will never look at more than 3 years ahead in terms of projection. In short term projections you need to be very specific, and use your current data, and your current results. Adopt a bottom up projection and include what you’re spending in it. For years 2 and 3, you can use a top down projection: how big is the market, which segment will I address, and what part of this market can I capture? Let’s be realistic: everybody knows that those projections are very likely to be false, or at least inexact. That’s not what matters here. What matters is the way you built them, if you’ve been honest, realistic, and have followed a clear reasoning. In a way, it shows how reliable your are, so if you’re not comfortable with this exercise, get help! Let’s now focus on a VC’s point of view. Nicolas El Baze states that once you have those technical points in mind, you can shift to the relationship standpoint of reaching a VC. For a VC, an investment is the beginning of a relationship and a commitment that can last up to 8 years with a company, and that he/she only makes once or twice a year.

In Silicon Valley, the ecosystem  is so rich that VCs are highly solicited. The velocity of receiving information and decision making is so important that they manage a stream, which resembles more like a no, yes, no, outcome making your chances very slim.

In this perspective, you will need to stand out and find a deep connection of interest with the VCs you target. Therefore, cold calls are pointless, and intermediates are seen as red flags. Don’t bother wasting your time contacting associates. The first thing VCs look at in a company is its team: its ability to involve the right talents in the project, how trustworthy it is, and if it’s potentially engaged in the US market. How could you demonstrate those abilities if you’re not even able to reach a VC by yourself? Well, the best way to approach your target is your network.

How to manage the relationship?

If you are able to captivate the attention of a VC, always make sure to show he/she that you and your company is trustworthy and an exponential asset in the market. This is an important factor as you will initiate a valuable kinship with your VC. A VC is like your confidant and a friend that needs to know everything. You can make a VC feel very important by keeping he/she up to date on your company, and don’t hesitate to ask them for help as this will further develop a stronger relationship. When negotiating with a VC, be prepared to actually give control to your counterpart, to revest your stocks. There is no need to be concerned as VCs just want to reassure that your interests are aligned with theirs. Embellish this as a potential partnership.

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