If there is one truth all founders will agree on, it’s that raising capital is hard. It’s pretty much a full-time job, and when you look at the success rates, it can feel downright impossible.
Fortunately, we have some tips on how to get your business ready for a capital raise in the US.
Are You Ready To Raise?
Here is our 3 point checklist to see if you’re ready to go!
1. Timing
Fundraising is a time-consuming process requiring full-time focus from the CEO.
Where are you financially?
Are you looking to raise because you are out of money?
Do you have enough cash flow to maintain the business during the raise and beyond?
Is your product ready?
Timing is all about catching the wave on key KPIs to motivate investment. You will need to be able to demonstrate successful KPIs from the past and future, and don’t forget an investment campaign can take 4-6 months so make sure you have the right amount of runway!
2. Product-Market Fit
PMF is a proof point that you have hit key KPIs and have a product that is marketable and saleable.
As market conditions change you’ll continue to adapt you PMF to maintain PMF. This happens over the lifetime of the company.
Stage 1 seed level - initial founder-led sales
In this stage, you have a minimum sellable product and at least 5-10 paying customers obtained without any personal connection to the founding team. You are able to show your solution has value and people are willing to pay for it, and you have at least one case study to convey credibility. You do not yet have brand recognition or PMF.
Stage 2 is a solid scalable product generating over $1-4M ARR.
By now you have an annual recurring revenue (ARR) of $1M - $4M, and the business is growing at a rate of greater than 100% year-over-year. You have a small brand community, with a tiny bit of word-of-mouth. Your customers are happy and you have proof points to show it. A good test of how you’re performing is to ask yourself - Are people referring you to others? Is word-of-mouth starting to spread?
Stage 3 growth stage $1M MRR
You have achieved product-market fit. Deals are closing, customers are buying and advocating for you enough to sustain your product’s growth and profitability. You have a monthly recurring revenue (MRR) of at least $1M and you are growing your sales and customer success team rapidly. Word-of-mouth is spreading, and your product is satisfying the market!
3. Go To Market (GTM)
So you understand your timing and where you are with PMF but now you need to set out your company-wide strategy for your GTM. This includes:
Financial plan - where the money is needed and over what period?
Product plan - do you have a salable product having achieved initial PMF, and if not what's the plan for getting there?
Sales plan - founder-led sales through targeted outreach, with funnel math to drive a sizable pipeline!
Team - do you have the right team? Where are you going to hire them and how many do you need in which locations?
International Considerations
If you’re not based in the US, there are a couple of additional factors to consider. You must be able to demonstrate PMF in your home market can be replicated in the US. You will also want to make sure investors can categorize your business quickly. Finally, it is highly likely there is a well-funded competitor to your business already in the US, so make sure to know your white space and demonstrate it clearly.
At Exit Velocity, we’ve helped numerous founders prepare for and execute successful capital-raising campaigns through our long-term support program, EV Capital™.
The program builds a substantial investor list based on a well-defined persona. We then set up and run an outreach campaign to build interest. We’ll help refine your pitch materials, product strategy, and roadmap and run the overall campaign over a number of months to a successful close. We’ll even help you negotiate the best terms on your capital raise.
Get in touch with us to find out more.
In our next blog we‘ll look at how to develop an investment campaign and the key metrics for success!