How to source funding for your startup

Ensuring your pitch is right, your timing is right and your investment story is right is critical to raising capital.

Fundraising is a daunting process. Outside of the circle of people who know you, believe in you, and may be able to support you financially in some way, the next step - convincing external investors that your idea is worth their time and their money - can seem disheartening. As Fraser Davidson, a venture capitalist who specialises in digital media businesses at Preparation Capital, says, you not only have to convince investors to invest in your business idea, but also to invest in you.

Ensuring your pitch is right, your timing is right and your investment story is right is critical to raising capital. Despite a disparity between the number of ideas needing capital and the investors willing to fund them, Fraser advises a realistic yet positive approach.

"It is possible, it definitely can be done," says Fraser, "and there is no rulebook that says a certain 'type' of company or person is going to be able to do it. In other words it's hard but democratic; a blank sheet of paper, but an even playing field."

"Think about how long you think it might take, double it and double it again"

Planning

All entrepreneurs will have heard the success stories of those who knocked on the door of a few investors, convinced them in a couple of days and landed capital, but for the vast majority, raising capital isn't that straightforward.

"Think about how long you think it might take, double it and double it again", says Fraser. Landing capital takes preparation, patience and hard work – not traits that will be unfamiliar to the entrepreneur who will have invested much of themselves in their business idea.

So where to start? As with every division of your business development, the key is in the planning.

Fraser cautions against an overly aggressive 'ask' from the outset which can effectively close doors quicker than they can be opened, but armed with a well-conceived idea, good business plan, clear rationale for how much capital you want, for what purpose and over what time, you will have a solid foundation on which to approach investors.

Fraser also advises to concentrate on getting this groundwork fixed rather than worrying about the intricacies of contract terms. Once you have cash on offer, you can focus on the finer details.

Timing

Next, you need to work out how to get in front of the money. As any entrepreneur will be aware, 'cold calling' is a challenging and wearying task.

"You're competing against the hundreds of others entrepreneurs out there casually walking up to investors and saying 'hey do you mind having a look at my great business plan?'" says Fraser.

"To make it work your timing needs to be pretty spot on and/or you need to have that absolutely killer idea that's going to transform the world. Raising capital is a popular pastime and the better known venture capitalists and so-called 'Angel' investors will receive hundreds of approaches every month or quarter, of which yours will be just one."

"So-called 'Angel' investors will receive hundreds of approaches every month or quarter, of which yours will be just one"

Networking

Above all else, Fraser suggests networking as the best way to start fundraising, though says it is crucial to build a relevant network rather than an expectation that these connections will develop immediately and be available on which to lean.

Starting with friends, families and colleagues, see who knows someone that is within a closely associated investment field and who, with a little nudge, can get you one or two friendly meetings. Even if they pass on the opportunity, they may forward you onto a more relevant investor and you may be one step closer to realising your goal.

"A warm introduction from a trusted associate/friend is a sure fire way to seal a meeting and get to the top of the 'to do' list," says Fraser, "Rarely if ever do I turn down an intro from a trusted connection."

Fraser Davidson is the founder of Preparation Capital Ltd. and has more than 12 years' experience working in various roles in financial planning and private equity investment.

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