How To Raise Capital For Your Company
Maximilian Rast has over ten years of experience raising capital for different companies. He was CMO at YFood Labs GmbH, the 100+ million euro revenue brand with over 100 million euros raised by Jumia South Africa. After years of working as a stakeholder raising capital for other businesses, Max now raised funds for his own company. He is the Co-founder of Klar, a single source of truth for e-commerce brands in Germany. Klark combines its data to help track performance, scale growth, and increase profitability.
In this episode, Max shares his valuable capital-raising lessons from the perspectives of the stakeholder and the decision-maker, as raising capital in his own company. He is the ideal character to provide the best insights for entrepreneurs looking to raise funds.
Have A Clear Target For The Capital
Yes, your company needs capital, but do you know how to use the money that will be raised? You need to define your company’s simple needs and how that investment will be used, even before raising capital. Set this as precisely as possible for yourself and the investors.
There can be so many company needs in the beginning that it can be confusing to understand how the funds will be used. For companies that are just starting out and do not have market experience, Max gives a tip: when defining objectives, understand the model and alignment of expectations of where this company ought to be going. You will have a better destination for the capital raised.
If your company has been in the market for a few years, the targets are already clearer. Max shares that speed to market motivated him to raise capital for his company, as there was a market need for his product. He used the investment money to increase the chances of exploring that opportunity, getting more people on the team and getting out there before the competitors.
When Choosing Investors Think Strategically in Value
To finance his own company, Max chose one institutional investor and a dozen angels. Behind this choice, he strategically thought about how these professionals could add to his company. His tip is: ask yourself if the angel is someone you see yourself getting a call from every week to help you grow the business.
Max explains that choosing the angel isn’t about the money, as his company had a good track record.Raising money wasn’t the concern; the concern was the value the investor could provide on top of the money, especially in the early stages. It’s surprising the expertise you can acquire from your collection of angels.
Companies that are successfully raising money get a lead investor, who’s a significant player with some status. Once you do that, it’s a lot easier to raise capital from others, since it makes it possible to have more investor options. That’s a dominant position to be in because you can make strategic decisions amongst the people interested in funding.
The Idea Is Not The Most Important To Investors
Many people have the misconception that to get investors, the most important thing is the innovative business idea. Of course, the product or service ideas matter, but it is not the main one. According to Max’s career experiences, investors are attracted by:
60% team involved
30% market in which the business is inserted
10% idea or product
Max shares that when getting to know your business, potential investors want to know if the team involved can carry out the proposal, which is the biggest concern. Investors also need to know if the market for this product is viable and healthy for investment. These are the factors that sustain the success of a good idea.
When presenting the proposal to investors, include some aspects to give dimension to your project, so investors can trust their money on you. There are a few main things they want to know:
- Who are you and what is your business?
- What is your track record?
- How big is the market you want to join?
Raising Capital Pre-Launch
You may wonder when you should raise funds for your company. There are certain types of businesses that can only exist if they raise capital pre-launch. This type of company needs significant capital investment to build product development, testing, and government approvals. If your company team is a large group, you also need to prepare and raise funds before launch, as these employees will need health insurance.
Raising Capital for Acceleration
Raising funds is not just for companies that have not started yet or are going through some financial difficulty. Capital raising is a way to expand opportunities that are not practically fundable through cash flow. For example, if your company is already operating well, then raising capital can allow it to advance even further. Maybe you need a growth accelerator, want to more quickly gain market share, a desire to grow enterprise value more quickly or foster geographic growth- all of this can be achieved with additional funding.
Focus On The Projections
There is no good deal that’s not fundable. The secret to winning over investors is to show projections and returns that are exciting enough for an investor. Investors are concerned about what the return on investment would be, as 9 out of 10 investments fail. That is why it is essential to explain how big the potential market is going to be.
When raising capital, understand how your company operates and especially what the primary motivations are for raising this money, which will put you in a better position to organize and raise capital at the right time.
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Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.
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