Going on a new round of fundraising is a pivotal moment for any startup. Whether you are experienced with fundraisers or had just started, understanding the essential factors that come into play during fundraising is crucial if you want to succeed.
As a region that prides itself in supporting innovation and tech, Singapore has positioned itself as an ideal place for startups to engage with potential investors. Singaporean-based startups have continuously raised billions of dollars each year, eliminating the notion that startups can only thrive in super-economy nations such as China and the US.
But fundraising is not as easy as it may look, especially for companies that are just starting their journey to success. Regardless of your situation, there are five considerations that you need to think about when you want to fundraise cash for your startup:
1. Know your value
Before every fundraising, you should know the pre-seed valuation of your company. This includes several items like the liquidation value, or the total assets the company owns, and the book value, or the value of the shareholders’ equity. It is important to know the difference between pre-seed valuation and post-seed valuation, as it impacts the share price of company stock and possibly dilutes the number of shares.
Remember that your value proposition not only comes in monetary form but also in what you can give to society. How can your product be useful to others? Is there a market appetite for it that makes your startup sustainable in the long run?
If the answer is yes, and you already have a user base, then make sales or growth projections. These figures are one of the main things that potential investors first look at. Essentially, they want to know whether your business has the potential to be profitable in the future.
Keep in mind to keep your fundraising figures realistic. Nothing turns investors off faster than pie in the sky projections that are unreachable. Work with an advisor who can help you come up with a rational number for investors; do not copy and paste the first number you found on Google. If you are a relatively new startup with just a prototype and no sales figures yet, emphasise how your product or company will disrupt and transform the traditional ways of things being done.
Learn the benefits of getting a fundraising consultant here.
Additionally, you can also come up with a number by determining how much equity you are willing to give up. Remember that giving away equity means investors have a say about the direction your company is going.
2. Pick the right time
The saying “timing is everything” is especially true for fundraising. If you raise money too early, you might give away a larger share of your business than you are willing to part with; raising capital too late, you might lose the competitive advantage of being the first mover in the space.
Ask yourself “Do I really need (external) cash at this time?” Remember that you typically only have one chance to impress potential investors. They likely will scrutinise everything that is related to your business, ranging from the business model, products, and the company financials; are you ready to answer these questions? Do you have data to back it up or a reasoning that will satisfy investors? If you don’t, investors will walk away in a heartbeat.
Calculating your company’s burn rate can also help you decide when you should fundraise. It is the amount of cash you are spending in correlation with your capital. Dividing your capital by the burn rate, you can estimate how long your company can survive until the next funding round.
3. Choose the right investor
There are many types of investors; the two most common ones are angel and venture capital (VC) investors. Angel investor refers to individuals willing to fork over cash upfront to support your business. Essentially, they believe that your company will be profitable in the future, and their investment will experience a significant uptick later. These individuals can range from anyone; your friends and relatives with minimal investment to high-net-worth individuals.
Meanwhile, a venture capitalist is usually a firm that consists of seasoned investors and experts. The concept of having venture capital backing is nothing new in Singapore, as evidenced by the growing amount of money successfully raised each year. One of its most successful stories is the Super App, Grab, which has reached decacorn status and dominates the industry, thanks to the backing of VC firms, such as SoftBank and K3 Ventures.
Check out our guide for venture capital financing for startups.
Regardless of your choice, both have their benefits and drawbacks. Choosing an angel investor is usually a faster process since they will do less due diligence than venture capitalists. However, their investment tends to be smaller than those of venture capitalists. Your ability to network is also dependent on the angel investor’s personal network. If you choose the venture capital route, you must be prepared to receive funding and guidance in a more formal setting, such as a Board of Directors.
Therefore, the investor you choose largely depends on the stage of your business, market size, and support needed post-investment. If you are a startup with just a prototype, an angel investor who can help you scale up production might be the right fit. In contrast, a startup that has gained traction and wants to expand its operations might want to consider the venture capital route.
4. Know your competition
Imagine that you are a soldier going into battle with your arch-nemesis. Most likely, you would huddle with your team to discuss the enemy’s strengths and weaknesses, pinpointing where you can strike and how to defend yourself. The same principle should apply to startups too. Understanding market trends, the existing players of your given industry, and what customers want is necessary.
Suppose your startup happens to compete in an established industry, like transportation, you may not need to explain what your business is selling as investors already can picture it in their heads. Still, you have to emphasise what makes you different from existing companies, define your competitive advantage, and describe how it can be utilised to gain market share from competitors.
But, if your business is relatively new and no one understands how it works, you may need to educate your potential investors first; think about how Grab was pitched during their initial round of fundraising. No one would have ever imagined an all-in-one Super App where you can order vehicles, foods, and medicine from a phone 20 years ago. Surely, the founders must explain how the app will work and disrupt the traditional way of doing things when they first pitched the idea to investors.
We understand that startups may find it hard to do this on their own. That is why a fundraising consultant can be of great assistance. They have a vast network of professionals working on the ground that can help you assess what your competitors are doing and the latest trends. Such information is useful for you to reevaluate your position in the market before offering your products in front of potential investors and customers.
5. Craft a business plan or pitch deck
Before you start fundraising in Singapore, you must have your business plan or pitch deck ready to go. A business plan and pitch deck is the first thing investors will see when considering investing in a company. It is the blueprint of how you will run the business effectively and how the business will grow to generate revenue and profit. It needs to gauge the interest of the investor, and it is a common practice to include the following information:
- Your business objective
- How are you going to accomplish and execute them?
- How will funds given be allocated for the betterment of the company?
- Projected growth or sales in the future
But, before you jump to your startup fundraising round, consider the components explained above. Find a way to make fundraising go smoothly by partnering with a corporate and fund services provider like Lanturn.
At Lanturn, we combine great service with great technology to offer end-to-end financial services and solutions for businesses. Lanturn has a proven track record in administering over S$200M in fundraising rounds for our clients, from initial seed rounds to Series C.