Are you starting your own business? Startup accelerators or incubators could be just what you need to get you investment ready. But which of these is right for you? Accelerator startup programs may offer different things from an incubator, and depending on your startup, one could be more beneficial than the other.
What Steps Can Companies Take to Get Ready for Investments?
Investment readiness is crucial because it enables entrepreneurs to meet the financial and fundraising expectations of investors. Being investment ready greatly enhancing their chances of receiving funding. Before approaching investors, entrepreneurs need to prepare themselves. Preparation is key in properly understanding their options and also establishing credibility.
Preparing responses to some of the key questions investors would most likely ask entrepreneurs during the pre-due diligence stage is the goal of the investment-readiness process. It involves investigating particular investors and determining whether or not they are a fit. To produce proposals, pitch decks, investment teasers, financial predictions, financial statements, etc., one must also have knowledge of how to do it.
How Much Money Should Entrepreneurs Seek and How Should They Put It to Use?
It is advised to raise as little money as possible, but just enough to keep the firm operating. The business owner should be aware that there is a typical sort and range of funding that is appropriate for specific business phases, and that straying outside of that range will call into doubt the legitimacy of the funding request. As a general guideline, the amount asked should be sufficient to sustain the business for 12 to 18 months, with revenue projections made using the worst-case scenario.
Priority is given to establishing the sales capability, the sales organisation, and the infrastructure in terms of assets or people needed to grow the firm at the given stage when deciding how to use the capital once it has been raised. The last of these three categories to take into account should be administration, salaries, management, and general overheads.
What Messages are Being Conveyed by the Financial Projections?
The investor’s language and tools, which must comprise an income statement, a balance sheet, and a cash flow statement, should be employed at a minimum when entrepreneurs present their financial projections.
Revenue forecasts are viewed as the entrepreneur’s goals and objectives and investors will evaluate the projections using their own experience. On the other hand, the entrepreneurs’ cost estimates need to be precise. Uncertainty in the data suggests that management doesn’t comprehend the cost base, which presents a risk to the investor. Investors expect the team to have financial expertise, but the management team, not the financial expert, is in charge of making the financial projections, therefore the entrepreneur must take responsibility for them.
What Must Business Owners Understand About Investors?
An entrepreneur must understand what an investment cycle is in order to assess the sort of effort required, the length of the process, and establish the funding strategy. The business owner can then begin to make more thorough preparations by focusing on certain investors he wants to target.
The investor’s skills and the areas they are intending to invest in can be determined by conducting research on publicly available information supplied by the investor. The business owner should confirm whether the investor is now in the financing stage, the amount of funding, and the schedule. If the fund is already completely invested at that time, even if the entrepreneur has a compelling business case, they will not be taken into consideration for investment.
What Do Investors Anticipate from Business Owners?
Risk, impact, and return are the three main considerations for investors. By providing a track record that demonstrates the entrepreneur is aware of the implications of investing in their business, they can reduce the risks that potential investors may perceive about a potential investment in the business, present the impact in detail and accurately, and describe the revenue potential. If the entrepreneur has previously raised investment, they must describe how it was used, how they collaborated with the prior investors, how the investment contributed to the achievement of specific milestones, and what comes after the current funding stage and how the company will develop.
How Can Investors Be Contacted?
Entrepreneurs have a propensity to approach as many investors as possible. However, more meetings does not equal more funding. If good introductions are made to investors who are good matches, good results are more likely to be attained.
Research on the potential investors, the enterprises they have previously backed, and their current preferences are required for this reason. Connections from incubators, personal networks, and funded startups can all be very useful in this process. A more thorough planning and preparation of the fundraising strategy will result in quicker funding.
If you’re working with one, startup accelerators will typically reach out to large amounts of investors for you. From there, narrowing them down to which suits your particular startup best.
What Size Should a Pitch Deck Be?
It is advised to develop a one-pager, a summary with some visual representation of the business model canvas, when delivering the company information to analysts for screening. This should give an overview of the firm in approximately one minute and influence their judgement.
If asked to do a personal presentation, the pitch deck shouldn’t contain over 10 slides of the most important data.
It is suggested that you construct your investment thesis by going in the following order: issue – solution – opportunity – rivalry – business plan – team – finances. It is also advised to look at some of the best pitch decks used to raise money for that particular industry.
Inexperienced entrepreneurs can frequently lack the financial knowledge and readiness that will make them appealing to investors. In general, it makes sense to devote time, effort, study, and skill to planning a fundraising. All business maturation levels will require any green entrepreneur to maintain investment-readiness as a critical, continuing effort.
For further information, read our 7 Rules to Secure Funding for Startups.
What is an Incubator or Startup Accelerator?
Startup incubators and accelerators are businesses that work to support the growth of startups. Startup accelerators frequently concentrate on offering resources, mentorship, and counsel to startups in order to help them succeed. One such resource is Demo Day. Demo day is a day dedicated to attracting the attention of the startup investor community by hosting a series of investment pitches from startups to startup investors.
However, accelerators may have a physical location for shared resources and accelerator events like invited guest speaker talks and advising office hours. Accelerators typically do not provide dedicated office space to businesses. In fact, they may even push entrepreneurs to acquire their own dedicated space. For a predetermined amount of time, incubators frequently provide businesses with exclusive office and development space.
Startup incubators and accelerators can get involved at any step of a company’s growth, from the idea stage to the late stage where revenue is generated. The majority, however, like to concentrate on relatively young startups. This is because this is the time when businesses may usually benefit most from outside assistance.
Typically, startups are accepted in batches, with many incubators and startup accelerators offering one to three batches annually. Some are more generalists, while others concentrate on a particular market, technology, stage, or other thesis. The majority try to execute an application and selection procedure.
Being accepted into a startup accelerator or incubator is not a guarantee for success for a startup founder. Nor is it guaranteed to be a wise investment for a startup investment. The right accelerator or incubator however can be very successful in helping startups achieve success.
How Do Accelerators Function?
The accelerator model differs from other methods of startup investment or business incubation due to a few common characteristics. These consist of:
- a stringent admissions procedure.
- a concentration on startup cohorts or “classes” rather than specific businesses
- mentoring or additional business education.
- Support that is intense and restricted in time and often lasts between three and twelve months.
Depending on its structure and goal, accelerators may be funded by venture capitalists, governments, or major corporations. Additionally, they frequently concentrate on assisting firms that are tech- or digital-related.
Most programmes promote a lot of peer-to-peer learning so that founders can pick up tips from people in similar situations. In the majority of programmes, mentoring by seasoned business people also plays an important role. Other typical services include the supply of cash, a workspace, supported networking, and educational seminars.
Amit has 18 years of experience in the industry and an MBA. He supports entrepreneurs with every aspect of their business including concept and product development, investor presentations, and fundraising. Amit & 7startup assist startups in the pre due-diligence process and help connect them to our vast network of investors. Reach out to us today and see if we’re a fit!