Developing - A - Fundraising - Strategy - For Startups

Developing a Fundraising Strategy for Start-Ups
www.ic-impactconsulting.com
Contents
1) Introduction & The 5 Steps

2) Step 1- Startup valuation
3) Step 2- Choose a funding source
4) Step 3- Develop investor’s pitch
5) Step 4- Strategies on how to ask money
6) Step 5- Build long-term client-investor Relationships
Introduction & The 7 Steps
• Supporting a startup in their fundraising can be a common project for Impact Consulting to undertake
• Depending on your project, you may need to cover most of these steps or just some of them. As always, your
research and recommendations should be specific to your clients problem and context, but this presentation
provides a guide to the key tasks that are key in developing a successful fundraising strategy
• Carefully study the client’s current situation, and customise the strategies accordingly, e.g., a client at late-stage
might need more help with steps 4 and 5.
• Even if you are only tasked with looking at some of these steps, the client and project team should have a clear
picture of the fundraising strategy from Step 1 all the way through to Step 5
Build long-term
Choose a funding Develop investor’s Strategies on how
Startup valuation Investor
source pitch to ask money
Relationships
Step 1- Startup valuation
• All successful fundraisers develop a powerful case for support, which is reflected in valuation of the start up
• Valuation is the process of calculating the value of a startup company.
• This should be an attractive and engaging argument as to why an investor should support this startup
• For valuation of a startup, Impact teams should work with the client to define:
1. The industry and sector it is catering to, and the market sizing
2. Strength of team, inclusion of big names in the founding/management can make a 10% stake
3. What is the terminal value and ROI (return on investment)
4. Risks involved in its development and launch- management, legislative, technological, etc.
5. Why they are uniquely positioned and qualified to tackle the problem
• Valuations are not permanent and change with time, capital involved, and risks associated. Therefore, Impact teams
should re-evaluate at every step
Impact teams can utilise several available approaches to evaluate the valuation of a startup. Two most commonly used
approaches for projects at Impact include-
1. Discounted Cash Flow (DCF)

➢ This method is used to estimate the value of an investment based on its expected future cash flows and then,
using an expected rate of investment return, calculating how much that cash flow is worth
➢To implement DCF analysis effectively, Impact teams should carefully review market trends, forecast future
market conditions, and make accurate estimations on future cash flow
𝐶𝐹1 𝐶𝐹2 𝐶𝐹𝑛
➢𝐷𝐶𝐹 = 1 + 2 + ⋯ + 𝑛
1+𝑟 1+𝑟 1+𝑟
CF= cash flow, r=discount rate
➢ This method relies on the ability of financial advisor on the team who can accurately predict market trends and
fit the appropriate financial model to the company
Source- EY, 2019, Startup valuation: applying the discounted cash flow method in six easy step, by Alexandros Matthiessen
Impact teams can utilise several available approaches to evaluate the valuation of a startup. Two most commonly used
approaches for projects at Impact include-
2. Market approach
➢This approach is used to determine the appraisal value of a business, intangible asset, business ownership
interest, or security by considering the market prices of similar companies or recent acquisitions of similar
companies in the market
➢ For firms requiring seed capital this is particularly valuable as investors often provide funds to businesses when
they believe in the product and business model as they have a reliable benchmark already available
➢The downside to this approach is that extensive forecasts must be determined to assess what the sales or
earnings of the business will be once it is in the mature stages of operation
Step 2 – Choose a funding source
• Traditionally, start up funding goes through several stages-

1. Seed capital- The sum necessary to start the company and implement the idea in a prototype.
2. Optimization- Early-stage funding that secures product optimization based on first adopters' and investors'
feedback.
3. Building- First positive results enable the next fundraising round to secure the money necessary for extending
the potential of the project.
4. Scaling- Once your project gains traction and shows significant results, you can secure funds necessary for
further scaling to increase the revenue.
• This step should focus on what stage the client is at and sources of funds your client should focus on as each has it
own pros and cons
• Here, Impact team should help identify specific individuals/organisations who would be interested in investing in the
startup and why (e.g. by benchmarking against other successful start-ups in the same area/industry)
• It is important to have a mixed portfolio so that they are not too dependent on a single source
Step 2 – Choose a funding source
• Some common and popular sources for funding include-

1. Self-funding (bootstrapping)- It is a great source to acquire seed money, and you don’t lose control over the
company. The major downside to self-funding is that you don’t have other investors who may be helpful
strategically, or for future financing rounds.
2. Friends & Family
3. Angel Investors- Angel investors are individual investors willing to take high-risk approaches with fewer return
guarantees. However, their funding budgets are usually limited and sometimes cannot cover startup needs in
full capacity. This fundraising strategy is best suited for getting seed capital and early-stage funding.
4. Incubators-These help with starting a business. Incubators help entrepreneurs solve some of the problems
commonly associated with running a startup by providing workspace, seed funding, mentoring, and training.
5. Crowd Funding- This strategy relies on getting small donations from numerous people to fund your startup
and gain first adopters for your products.
6. Venture Capital- These are companies or firms that are willing to invest, in exchange of equity and may also
want to have an influence over your business decisions. In addition to capital, they provide strategic
assistance, introductions to potential customers, partners, and employees, and much more.
Source- Forbes, 2019, Startup Financing: 5 Key Funding Options For Your Company, by Richard Harroch
Step 3 – Develop investor’s pitch
• The Impact team will establish what resources need to be in place to start a fundraising round and give best practice
recommendations on how to create/improve them
• Impact teams should help the client develop a ‘pitch deck’ typically consisting of 15-20 slides in a PowerPoint
presentation and is intended to showcase the company’s products, technology, and team to the investors.
• It should clearly outline the following- Company Overview, Mission/Vision of the company, Problem, Solution,
Market, Opportunity, business model, marketing plan, finances required, and how the investor will help
Source- AllBusiness, A Guide to Investor Pitch Decks for Startup Fundraising, by Richard Harroch
Step 4 - Strategies on how to ask money
• This takes Step 2 and identifies the specific investor(s) you plan to target
• Impact teams will develop a tailored approach for how to ask each target group for money and establish how the
client can reach out to the potential investors
• Several crowdfunding websites, e.g., Kickstarter, Indiegogo, Crowd Supply, allow you to campaign and raise capital for
your startup
• To contact angel investors, or VCs, identify investor conferences, industry specific events that the client can utilise to
connect and network with potential investors
• An important point to highlight during these events is the strength and qualifications of the founding/management
team
Source- Forbes, 2019, Startup Financing: 5 Key Funding Options For Your Company, by Richard Harroch
Step 5 – Build long term client-investor Relationship
• Building long-term relationships is crucial to the longevity and success of any start up
• Here, Impact teams will provide best practices regarding how the client should manage investor relations and
keep their investors up to date (e.g. through emails or a platform/software such as Investory etc.)
• Keep the investors updated with progress.
• This should form part of the marketing strategy

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Developing a Fundraising Strategy for Start-Ups

1) Introduction & The 5 Steps

1. Discounted Cash Flow (DCF)

• Traditionally, start up funding goes through several stages-

• Some common and popular sources for funding include-

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