Atomic 47 Labs

How To Fund Your Startup with “Smart Money”: Tips From an Expert

A pivotal consideration when taking your startup from A to MVP is the “F word.” 

That’s right, funding.

It is a topic we’ve covered before at Atomic, which continues to bear significance for our clients.  

Securing startup capital is often thought to be the most challenging stage in building your business. That may be true; but if approached carefully, it can be the secret sauce to growing your business right. 

So, we decided to ask an expert for some strategies on how to find the best funding fit for your business. 

The trick is to look for smart money, according to Paris de l’Etraz, professor of entrepreneurship at one of the world’s top business schools, IE Business School. For over two decades, he has devoted himself to understanding the feats of a successful startup, consulting early-stage businesses and leading IE’s Venture Lab, an incubator for startups to pitch to investors. 

“It’s not only about cash,” he told us. “You have to leverage your investors.”

We dove deep with De L’Etraz on the topic of funding and here are some key considerations, he said, entrepreneurs should focus on when it comes to raising capital.  

“Show Me The Money”….and Experience, and Contacts…

“My main advice is to look carefully at who your potential investor is,” he said. “You should be looking for smart money – money that comes with contacts and experience – not just money.”

Consider this: it’s unlikely that your angel investors will take a hands-off approach. By investing in your product, they have made it clear that they believe your startup has the potential to be successful; they’ve even put their money where their mouth is.

It is more likely that the angel investor takes an active role in decision making that will affect your organization’s outcome. For that reason, you should be meticulous in deciding what type of investor would be a suitable fit for your business. 

However, De L’Etraz shared a word of caution to startups and early-stage businesses looking for funding:

“Entrepreneurs should protect their equity in their startups and avoid raising money until they have some revenues, otherwise they will get diluted,” he said. 

Transparent Communication is Key 

Transparency is critical to ensure that your expectations are level. 

Inform your investor of the pace that you realistically expect your business to grow, so they understand that it may take longer to see the results they envision. By leveling your expectations from the start, you can avoid any potential miscommunications down the line. 

“The best funding fit is when the valuation properly reflects the company’s value, and when the use of funds is well-planned for growth,” De L’Etraz said. 

In essence, don’t just raise money for a rainy day. Instead, know exactly where that money is going and what it is needed for.   

But, communication goes both ways and entrepreneurs must insist that potential investors be as transparent as possible as well, he warned.

“When selling shares to angel investors, watch out for minority rights that they try to impose, some of these can be very onerous.” 

According to De L’Etraz, your best bet is to build a solid product or service, and let it speak for itself. Investors will then come flocking. 

Informed by years of experience in the field, De L’Etraz stressed the importance of establishing a relationship of trust between you and your potential investors. The relationship should resemble a partnership above all, with both parties working to benefit together, not separately. 

So, as you start pitching to potential investors, consider this: are they the right fit for your business?

 

Looking for the right funding strategy? Let us help! Book a free consultation with Atomic 47 today and let’s scale your business together.