As funding winter extends into another year, founders need to plan for potential challenges in their fundraising plan. Seasoned founders adopt some contingency planning regularly and it is worthwhile for every founder to do so.
Startup founders should start with a clear understanding of how long they can stay in the fundraising mode, the importance of investor relations and required flexibility on the target amount. Along with this, they need to plan for each of these factors going wrong.
To be clear, growth capital raised at the right time is more beneficial than waiting for the right valuation or amount. If capital is coming from the right set of investors then signaling value itself can be a massive boost for the startup.
Let us look at some of the basic ways to prepare for contingencies in fundraising:
1. Equity vs Debt
If startup is generating cash or has enough assets to raise debt from banks/NBFCs/Venture debt. Startup founders should prefer getting working capital credit without dilution as a first option. This of course depends on the ability to service these obligations and the amount of funds needed by the startup.
In most cases, this option partly satisfies the capital need in the short term.
2. Flexibility in Deal Size, Valuations
Funding deal sizes and valuations are best imagined in ranges. Founders have to remain flexible, especially if the investor could write a bigger cheque either in the current round or next. Focus on filling at least two buckets during a fund raise.
One bucket is filled if there is certainty on closing the current round or extending the previous round with the same terms. The other bucket is filled when an investor is identified as potential for a larger next round.
Taking time to fill each bucket requires time and effort in keeping investors warm and of course following through with data needs for investors to make informed decisions.
Best startup founders regularly report their basic MIS to all trusted prospective investors, irrespective of them committing in the near future. This also means internally the company should have clear reporting structures and processes.
3. One Co-Founder to Lead All Investor Conversations
This has become a necessity in funding winter times. While startup founders are hard pressed for time on sales, operations, product development, and funding etc, one frontender who can clearly convey progress with data to investors about the business is necessary.
This enables continuity and trust base development with the investors, even though there is significant time allocation by the particular founder.
In funding winter, it takes consistent effort to close deals. There is also an overhang of money not coming soon enough to extend startup runway and prepare for growth.
Hence, founders need to plan on above contingencies and figure efficient ways build and leverage investor relations to get capital certainty.
Explore the potential for your startup’s fundraising journey with PrivateCircle Markets – an early taste of India private market intelligence for startups navigating today’s fundraising landscape.
Unlock valuable investor insights by signing up at markets.privatecircle.co and unveil your relevant investor matches in mere minutes.
Dive into a world of possibilities!
