With European venture capital fundraising on track for its lowest total since 2015, it’s becoming evident that the days of high valuations and investor excitement are behind us. As a result, investors are taking a pause, and now, more than ever, startups need to ask themselves: how can we boost our chances of getting funded? Tania Marinich, GP of Imaguru Ventures, CEO and founder of Imaguru startup hub based in Vilnius, Warsaw and Madrid, offers some valuable insights on what startups can do to improve their chances of securing investment in today’s challenging economic climate.
Preparing for the investment is a full-time job
Searching for investment is no longer something that can be done on the side or as an afterthought. And it is not just about polishing your pitch deck or refining your financial projections. It means building a sustainable and scalable business model that can withstand the scrutiny of investors.
To increase your chances, it’s important to make the preparation process an ongoing one. Don’t put yourself in a position where the money has already run out, and there is no investment yet. Startups should be constantly refining their business model, testing assumptions, and gathering feedback from customers, mentors, and advisors.
This not only helps to ensure that the startup is constantly improving but also demonstrates to investors that the team is committed to their vision and willing to put in the work necessary to make it a success.
Honesty is the best policy
When it comes to securing investment, honesty and transparency are crucial. It’s important to conduct due diligence on your startup as if an investor were doing it, having answers on a range of questions to assess the viability of a startup. Investors are always interested in the company’s revenue generation strategy, target market, go-to-market strategy, and competitors. They’ll also want to know about key post-fundraising hires and desired board composition.
Additionally, investors will carefully evaluate the technological aspects of your startup and assess its scalability and security. They’ll want to see evidence that you have considered technical debt and have established structures and processes to support the software development lifecycle.
And avoid embellishing the truth even when facing challenges, so that the investor could gain a comprehensive understanding of the situation and provide appropriate assistance. By being open about your progress and problems, you can build a level of trust that will pay off in the long run. Forget 2021 grades built on expectations, focus on realistic metrics.
Your first investor = your best ally
Your first investor can be your best ally when it comes to securing investment. It’s a smart strategy to seek their advice and explore the possibility of bridge rounds, which have become increasingly common during crises, including the pandemic and current downturn. We do this regularly at Imaguru, one of the recent examples is the Filmustage startup whose latest funding totals $550,000.
Remember, your investor is just as interested in your company’s development and growth as you are. In fact, a report by the National Venture Capital Association found that 81% of VCs offer strategic guidance to their portfolio companies.
However, it is important to note here that startups should not treat the investor as a grant provider. Making demands like “either you help us or we close” is the last thing an investor wants to hear from a startup running out of money. Instead, it is important to maintain open and honest communication, share concerns, and seek support without resorting to ultimatums.
Alternative sources of money: Identify untapped potential
Grants present an excellent opportunity for additional funding, particularly for startups operating in priority sectors like AI, healthtech, and cybersecurity, as actively supported by numerous European organizations. It’s crucial to stay informed about their requirements and the potential opportunities they offer.
Furthermore, explore alternative sources of funding within your startup. Consider strategies to enhance profitability and reduce unnecessary expenses. For example, startups can generate additional revenue by offering consulting services, licensing their technology or selling excess inventory. They can also explore ways to reduce expenses by outsourcing non-core functions or using cloud-based software solutions to streamline operations. Another option is to leverage existing relationships with suppliers and vendors to negotiate better terms and discounts.
Additionally, a profitable startup is more likely to get investments. Take inspiration from Zeely, a Ukrainian team that recently raised $1M showcasing their ability to generate revenue.
A proactive mindset is essential
During times of crisis, startups often prioritize immediate investment and overlook valuable long-term opportunities. However, conferences, meetups, acceleration programs, study tours offer more than just knowledge acquisition; they provide fertile ground for building a strong network and showcasing ideas and capabilities of startups.
Maintaining a proactive mindset is essential. At conferences, for instance, some choose passive observation, while others non-stop communicate with experts and investors, maximizing meaningful connections. By exploring various opportunities and actively engaging in their pursuit, startups expand their horizons and make a contribution to their long-term success.
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