First-time fundraising represents a challenge for every founder growing a business. Moreover, following an economic downturn in 2022, the investment process has become more thorough and cautious, leaving early-stage founders to face higher expectations. A Czech Business and Investment Development Agency, CzechInvest, has recently offered Czech startups an opportunity to prepare them for their first investment strategy and answer their questions with the latest fundraising tips.
Through a series of workshops, the participating founders got the insights and know-how on preparing for investment on both business and legal sides. In cooperation with major Czech VCs and experts, the Investment Academy aimed to give the founders a deeper understanding of the investment process and gain more confidence and experience. The Recursive has asked the founders about their experience and knowledge gained at the academy and brings you a list of nine fundraising tips for early-stage startups for 2023.
“We see a huge value in the complex and deep education of founders. The field of investment is most certainly an aspect that every startup will need to explore, and the sooner, the better. It will help them to work on their investment strategy from a longer perspective, get familiar with the legal terms and consequences, understand their true value, and become an equal partner in the negotiation with the investors,” shares for The Recursive Beáta Vörösová, Director of Startup Department at CzechInvest.
9 Fundraising tips for early-stage startup founders
#1 Choose the right source of funding
The first questions startup founders ask themselves are how much and how they need to raise funds. For projects at early stages, some of the most common forms of fundraising, besides venture capital funds, are crowdfunding, bootstrapping, or support from angel investors.
Tomáš Nováček, CEO of future mobility startup Qoolers, shares: “Not every startup needs money from an investor. There are plenty of other ways to finance a startup, and every founder should carefully consider all the pros and cons before bringing an investor into a startup.”
#2 Assess an appropriate timing for investor entry
If venture capital is the most suitable source of funding for a startup, it is crucial to select the right time for starting the conversation. While the period varies, founders should consider how developed their idea is, how much they can still grow on their own, and how long the negotiations before an investment could take.
“Perhaps the most important thing I improved is my perception of the company’s readiness for investor entry. At Qoolers, we are going to focus particularly on company growth and postpone investor entry to the latest possible stage,” continues Tomáš Nováček.
#3 Find the right investors
When finding suitable investors, it is vital to take into consideration factors such as location, industry focus, stage of the company, type of deal, or common visions, and expectations. Proper research is recommended before reaching out to individual funds.
Robin Pultera, CEO of VR & AR startup Brainz Immersive, notes: “We need to work on our potential investor list that fits our Gaming/VR focus as it’s a narrow crowd that’s not always easy to reach and meet from Prague.”
#4 Think from the investor’s point of view
The most noted insight from the Investment Academy fundraising tips was the importance of each investor’s perception and understanding of their thinking. It’s essential to know if your investor is on the same page to successfully initiate the negotiations.
“Try to learn how VCs think about your startup. Try to imagine how they think based on their background and if their background is relevant to your project,” says Daniel Puchta, CEO at Dolphin Printer, a 3D printing solution.
Robin Pultera continues: “Listening to how investors think was crucial to understand their motivation and, thus, how to approach them.”
“There are different approaches to project presentation and negotiation with investors, which can vary according to cultural and regional differences. For example, the UK approach may differ from the Czech or American approach. It is important to be aware of these differences and to adapt your approach to make it as attractive as possible for the investor in question,” shares Martin Kotek, CEO of Digital Intelligence s.r.o.
#5 Tailor your pitch deck
Similar to various approaches to communicating with investors, you should also tailor your pitch deck based on your audience and occasion, just like applying for jobs with various CVs.
Martin Kotek says: “It is important to look at the pitch deck from the investors’ perspective and realise that the views of individual investors can differ. For my next fundraising, I will prepare multiple variations of the pitch deck and will vary it based on who I send it to to make it as compelling as possible and meet that investor’s requirements.”
#6 Know your numbers
Having a well-prepared financial plan is essential for investment negotiations, agrees Martin Kotek. Following the downturn of 2022, investors are putting an emphasis on the numbers based on detailed analysis and planning.
Martin Podařil, Business Development Manager at AIffinity, an AI and NMR-powered molecular design solution, adds: “It really doesn’t matter what your cash flow numbers are, but how you calculated them. For our next fundraising, one of the things we will focus on is having a reasonable cash flow.”
#7 Focus on the first negotiations
Once you have selected suitable investors and your startup and documentation provided took their attention, consider your capacities regarding the number of investors you can deal with simultaneously and pay attention to the first negotiations.
“One piece of advice I would give to other founders looking to raise funds in 2023 is to not approach too many investors right at the beginning but focus their efforts on negotiating with a few. The first negotiation is very important and will move you further in the fundraising process. It will also make you more prepared and successful with the other investors you negotiate with in the future,” shares Martin Kotek.
#8 Have an experienced lawyer on your side
In order to successfully fundraise and protect yourself and your company, it is essential to cooperate with a lawyer for fundraising. From regulatory compliance, and risk identification, to taxation or licensing, having a lawyer on your side will increase the chances of closing the investment deal.
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“Don’t underestimate the legal services when making the deal and have an experienced lawyer on your side,” adds Martin Podařil.
#9 Protect your idea
The fundraising tips of the workshops also covered the topic of intellectual property as part of the investment process. Protecting your ideas and solutions is one of the reasons for potential business success, as well as the likelihood of successful negotiations.
Daniel Puchta shares: “After the academy, I will focus on better securing our IP.”
