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You’re an entrepreneur with a great idea. You’ve got a reliable cofounder, perhaps even a whole management team. You understand your target user base and region, and you’ve put together a killer business plan.
Now you just need some startup capital.
There are lots of ways to raise money for a business, from asking friends and family to taking out a small business loan. Or you could go bigger, seeking the investment expertise (and deep pockets) of angel investors or venture capitalists. Crowdfunding sites such as Indiegogo or GoFundMe are another popular option for startup funds nowadays.
An Investor's Lesson to Entrepreneurs
Entrepreneurs have the power to transform societies for the better. But how do you attract investors to start or grow a business? Or to sell one? Check out this seminar for the answers to these and more, straight from a master venture capitalist!
Amidst all these options, how do you choose?
Any venture capitalist worth his salt will tell you there’s no one best way to raise capital. It’s all about finding the right partner for your unique entrepreneurial mission.
GLOBIS Capital Partners is Japan’s leading venture capital firm, boasting a strong track record of IPOs and M&As. Their invested companies include internet media company GREE, news aggregation app SmartNews, and e-commerce company Mercari. We spoke to Cofounding Partner Soichi Kariyazono and Senior Associate Kosuke Fukagawa about how to approach raising money for a new business.
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Write your equity story.
New business owners need to think about a lot of operating expenses, from staff to office space to marketing. But when you’re seeking startup capital, don’t let yourself get lost in the weeds.
Fukagawa suggests starting with the big picture: “Dig deep into your company’s mission and clarify the hypothetical growth—your ‘equity story.’”
Kariyazono says an equity story that resonates with investors includes three key things:
- A high-growth market opportunity: Explain your mission and the problem you’re aiming to solve.
- An outstanding business model and strategy: Show that you understand the market, target consumer, pain points, etc., and have a plan to bring in revenue.
- A talented management team: Demonstrate why you and your team are the best people for the job.
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Have you ever wondered why certain companies are more successful than others? The answer is strategy: internal processes that control costs, allocate resources, and create value. This course from GLOBIS Unlimited can give you the tools you need for that strategic edge.
With this equity story at the ready, you’ll be able to communicate your holistic value to potential investors.
Determine what kind of fund you need.
Once you have your equity story in place, you’ll have some clue as to what kind of funds you should look into.
“Compare and contrast the nature of the funds you need,” says Fukagawa. “Work backwards from the milestones of business development. There are many businesses that are more compatible with debt or bootstrapping than external funding.”
In other words, be wary of diving into one type of startup capital because it worked for a friend or famous entrepreneur. There is no one sure course when it comes to how to raise money for a business.
“I don’t think there is a ‘best’ generic method,” emphasizes Kariyazono. “The most important thing is to understand the expectations of investors—any investors. That means venture capitalists, but also angels, large corporations, banks, governments, municipal subsidies, and all the other entities that provide funding for ventures.”
Understand investor expectations.
When you pitch to investors, your first instinct will be to explain all the reasons your idea is the best, especially in terms of how much profit it’s expected to bring in. But even if you have a solid trajectory for revenue, investors are looking for more than that.
“People or organizations that invest in startups do so based not only on economic return, but also on various other expectations,” says Kariyazono.
As they listen to your pitch, investors will be asking themselves several questions: What will this business collaboration be like? How hands-on is this entrepreneur open to us being? What kind of social impact is expected?
Investing & Diversity: The Changing Faces of Venture Capitalists
Is the venture capital industry embracing diversity in investors? Watch global venture capitalists from around the world discuss the state of things and what needs to be done for a more inclusive future.
While these are all good questions to prepare for, they do vary in weight depending on who you’re talking to. For example, sustainability-focused angel investors will probably be wondering, “How authentic is this team’s commitment to sustainability? Have they fully fleshed out the long-term eco-friendliness of their model?”
“Entrepreneurs and CFOs need to understand the expectations of each investor,” says Kariyazono. “Then they should design their pitch and communicate expectations so that they can provide the right kind of returns.”
Every investor has money to invest. But they’re all looking to invest that money for different reasons.
Be smart about how you raise funds for the business.
Many founders want to keep a hefty share of their business—that is, they hesitate to share too much equity. There are pros and cons to sharing more or less equity with investors, and sometimes your decision will be swayed if you find the right partner.
To find the right partner, do your due diligence—and be open to criticism.
Fukagawa has one more piece of advice that will help you ensure a well-rounded equity story and business plan: “Have a red team that will play bad cop to your idea. This red team can give you constructive arguments and share lessons learned. It is better to have a diverse group of people for this—potential customers, leading players in the field, and people from regulatory agencies, for example.”
Every entrepreneur is eager to secure funding so they can get started bringing their business to the world. But to ensure your business doesn’t get into a bad relationship, put in that extra effort for a strong equity story and investor research.
After all, you don’t just want any investor—you want the best possible investor to help you achieve your mission. That partnership will help ensure that your business not only launches, but lasts for years to come.
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