Raising funds for a startup is usually a very slow and frustrating process. If you don’t have the experience in fundraising, the process of creating prospect lists, making pitches and following up can easily wear you out. You might approach up to ten or more prospects before closing your first investor. In addition, you will probably need more than one investor to reach your target.
Here are some tips for closing a startup financing deal:
See also: 6 Pricing Models for Startups
1. Offer investment options
When seeking funding for your startup, flexibility is very important. Therefore, don’t approach prospects with take-it-or-leave-it terms since you might just end up losing out. Be willing to adjust your terms in order to accommodate the investor. For instance, you might be seeking an investment of $50,000 for a 10 percent stake in your business. If an investor offers you $50,000 for a 15 percent stake, you should be flexible enough to adjust your demands. In addition, your terms should vary when dealing non-institutional investors such as family and friends.
2. Have a closing date
Closing dates are very important when seeking funding from institutional investors and venture capitalists. Therefore, be sure to add a closing date clause in the financing documentation for your startup. This will create a sense of urgency for the prospects who you are pitching to. However, some investors will ignore the closing date and release the funding when they feel like. To accommodate this, the closing date clause should therefore be modified to appear as follows:
‘The closing date is (a specific date in future) or another date which both parties will agree upon.’
This modification will keep the documentation valid if the release of funds goes beyond the closing date.
3. Anticipate follow-up meetings
At the end of each meeting with potential investors, be sure to ask for a date for the next meeting. This will keep your relationship with your prospects moving forward. Instead of revealing all the details about your project in one meeting, it would be advisable to spread it over two or three meetings. This will give the investor time to warm up to you as well as your idea. During the negotiation process, remember to offer the prospect contacts of previous partners or investors that can vouch for your startup. Such references will boost your credibility and make it easier to close.
4. Ask for the money
During the fundraising process, it is easy find yourself preoccupied with the paperwork and endless meetings with potential investors. With all these activities, you might forget that your main intention is to get the money. Therefore, you need to cut to the chase and ask for it. If you ask for the money early in your pitch, you are likely to receive the funding faster. Once the prospect shows interest in your idea, stop selling. Simply ask them if they want to send a personal check or make a wire transfer. Until the money is in the bank, the deal is not closed.
See also: 5 Common Legal Mistakes for Startups
Closing a startup financing deal does not have to be a difficult process. Following the guidelines above will make the process much easier.
Do you have any tips about closing a startup financial deal? Let us know in the comments section below!