Getting A Round funding for your business idea is hard work… but getting B Round funding is even harder. Here’s how to make sure you’re prepared for the battle ahead.
Ask just about any start-up owner in Australia, and they’ll tell you that getting their idea off the drawing board by finding investors was hard yakka. Ask the investors, and they’ll tell you that while the investment market is tightening at the moment, there’s still money kicking around… for the right projects, of course.
What this means for small businesses seeking investors is that the all-important B Round of funding is getting harder and harder to come by. So how can Australian start-ups get over the next hurdle and make sure that there are funds available to keep their business afloat during those crucial early stages of growth?
The Four Stages for B Round
It’s an immutable law of nature that venture capitalists and angel investors absolutely love A Round funding drives. There’s a palpable excitement to such early-stage investing – and they all love to feel like they are getting in on the ‘ground floor’ of the next big thing.
It’s also relatively easy for the people with the big ideas that are looking for the investors – if the idea is strong enough, and you can communicate it effectively, then you’ll be able to grab the attention of someone with the funds to help you get your idea off and running.
But when it comes to B Round funding, it’s a whole other kettle of fish. In place of the excitement of a brand-new idea and the boundless enthusiasm of those pitching for funding, you’ll find probing questions and requests for hard data about sales, growth, forecasting and client details.
And at the end of the day, when it comes to securing B Round funding, the key to it all comes from four vital components: Preparation, Plans, Results and the Pitch.
You don’t need to be Donald Trump to know that you should never, ever meet with a potential investor without doing your homework beforehand. Preparing to meet with a potential investor means making sure that all of your ducks are in a row – and that you are armed with all of the information that they are likely to need to make the decision about whether or not to give you the funds you need.
The preparation phase is a tough slog, and will involve making sure that your business reporting, including profit & loss statements, sales figures and any other KPIs you’ve agreed to meet with your initial investors – is all up to date, and easy to understand.
The world’s flashiest Powerpoint presentation won’t mean a thing if the data’s not right – so take the time to go over your data, and practice answering questions on-the-fly. Your family, friends and co-workers might find it an onerous task to listen to you go through your presentation for the 15th time, but being prepared is a big step towards achieving your goals.
If you’ve made it this far through the process of funding, and you’re ready to seek B Round investors, then you will have a business plan in place. And it’s at this stage of funding that your planning becomes a vital piece of the investment puzzle.
“Planning is important when looking to raise funding, but it can also be difficult because of the huge uncertainties that face every startup,” says Michael Ford, CEO of Castaway Forecasting. “If you don’t have the skills to manage this stage properly, engaging professional help could well be the best investment you can make. Raising capital can be a difficult, drawn-out and distracting process, so having someone with experience on your side can make a big difference.”
It may seem obvious, but what this means is that it’s virtually impossible to succeed by going into the B Round process with a half-baked, nebulous plan in place. Investors didn’t make the money they have by throwing it at every Tom, Dick or Harry that walked into their office – they will want to be assured that the person they’re stumping up the money for knows what they’re doing, where they’re going and – most importantly – how they’re going to get there.
Investors are results-focussed people – and they need to be, in order to survive and keep making money. As a consequence, the results that you need to show them from the period between the A Round and B Round are necessarily vital.
It’s at this point that you need to make sure that you know your business inside-out, and have every possible detail you’ll need on hand, and be able to answer any questions your investors might have. A pro-tip at this point: there’s no point in trying to fudge your results, or hide any negative aspects from potential investors. They are, more often than not, detail-oriented people who can, and will, spot a hole in your information from a mile off.
Finally, if the results you’re bringing to the table don’t tell a compelling story of sustained growth and success, then perhaps now isn’t the time to be seeking out B Round funding. You might be better off looking elsewhere for funds to keep the business ticking over, giving you time to get the results into the positive area you want.
If you’re not ready to seek B Round funding, but you’re running short of funds to keep the business afloat, it might be time to have a frank discussion with your initial investors to seek their advice, and to see if they would be interested in providing you with a short-term bridging loan, and their guidance on how to get the business in to the black. They’ll have a vested interest in making sure the business is a success – after all, it’s their money you’ve been spending.
The pitch is the sink-or-swim moment in any funding round – and there is no worse feeling than watching the spark of interest in an investor’s eye fade as the pitch you’ve worked so hard on falls flat.
At this type of funding round, investors will be a lot more reserved in their enthusiasm – so it is very important that you do your homework about who you’re going to be pitching to as well.
As Rob Adler, CEO of Wordstream, pointed out in a recent blog post on his website, getting in front of the right person can pretty much be the difference between funding and failure. Imagine this scenario: you are seeking funding, and you have a choice between two investors from the same company.
The first investor has just signed up three new investments, taking her total portfolio to eight start-ups and three company board positions. Her business partner, on the other hand, has just sold his stake in three companies… which means he has both the means and the time to invest in something new.
When the big day arrives and it’s time to make your presentation to the investors, this simple five-point checklist from Peta Ellis, a communications and start-up expert from Brisbane, is a must for making sure your pitch gets you the results you want.
- Know your audience.
- Know your product / business so well that you don’t need to memorise a structured pitch – instead you can talk about it confidently and have answers for any kind of question.
- Show you know your market better than anyone else – especially your competition.
- Speak clearly, slowly and confidently.
- Back up your figures and projections with numbers, results and stats.