Fundraising period

In the case of startups, fundraising means the process of startups for investment. It marks the period when a company focuses on attracting some kind of financing in the hope of faster growth.

There comes a moment in the life of every startup when it is necessary or advisable to raise capital. Forced capital raising is always more difficult, as it means that the money invested in the business by the founders or previous investors is running out. This cannot be hidden from potential investors, as they carefully screen the company before they get on board. 

If it appears that without new investment the business will soon run out of funding, this will greatly impair the bargaining position of the original owners. (To determine this, it may even be sufficient to look at the amount of money burned by the company each month.) The result of such a situation may be that the company receives less capital for the transfer of the same share of ownership. In this sense, fundraising is like preparing for a borrowing, it brings the best profit when there is no urgent need for capital. 

In addition to the right timing, fundraising can be successful if the company can clearly present its goals and explain to potential investors what it intends to use the capital for and what it will get after the investment. In the life of most businesses, there are successive big leaps (this is called scalability), investors see the most fantasy in them, it is advisable to link capital raising rounds to them. This could be the production of a prototype or a Minimum Viable Product (MVP) at an early stage, the start of mass production at a later stage, or the conquest of a new market (another country) or a new market area (another consumer group). 

The clearer and better defined the goal and the future profit or loss, P&L achieved by the goal, the easier it is to find an investor. That is why it is important that the company's financial, marketing and business plan is in the best possible condition at the moment of fundraising. It should not be attackable, meaning here, for example, that it does not contain untruths and any other "cosmetification". Do not be exaggerated and voluntaristic, and be objectively supported by up-to-date data. In this respect, fundraising is very similar to an owner exit. 

If all of these are given, then it is worth starting the fundraising process. The most important element of this is, on the one hand, that the business must determine what type of investor would be most useful to it. 

On the other hand, it must be clarified what degree of independence the old management wants to maintain for itself. You should know that most investors want to acquire a controlling majority in the company, because it means security for them. This can only be avoided with a strong bargaining position, very good company prospects and hard bargaining. The owners usually have to accept that investors will value the unit part of the minority package lower than the majority share.

In the initial period of the business, crowdfunding provides great independence to the owners, possibly a mentor-type investor, i.e. an investor who also helps the company with advice. The latter can be, for example, the business angel. In the more mature stage, the investment of venture capital funds in the company can also provide help and more capital.

Finally, there are professional investors, but they almost always belong to the exit category, since they almost exclusively target majority ownership. This circle of investors primarily sees a business opportunity in the integration of the company, and thus in ending the independence of the original owner.