Venture Capital might be an option but it is not a holy grail

19.03.2021

EIT UM Accelerator batch #2 HUB East delivered its second Learning Session dedicated to How to fundraise for your mobility start-up organized by Czech PowerHUB in cooperation with Spinlab and Zonecluster.

Five selected startups for batch #2 Accelerator HUB East experienced another learning session delivered by Smart infrastructure Ventures which has tested how well they are prepared for fundraising and what important things they should consider when fundraising. And we are excited to share with you a few tips & tricks of this learning session led by Dirk Frohnert, CFA.

Learning Session started.

First, answering yes to the question Do I really need the money? is simply not enough to go fundraising. And if you are considering venture capital you should get at least tens of such yeses to the questions like (1):

  • Is there an advantage of VC compared to bootstrapping, loan or grant?
  • Is there some initial traction?
  • Can it grow fast with the limited cost? (small marginal cost)
  • Am I willing to sell my shares of the company within the next 7-10 years?
  • Do I want to increase the risk of bankruptcy (with limited liability)?

Tick Tock.

Time is a very precious commodity right now, but be ready that fundraising takes time and requires patience. On average the founding round can take 6 – 9 months and most likely will be longer than expected. It is really a full-time job. Well, you could think like a CEO to delegate the administration, but it is not really recommended, founding rounds should be led by CEO or CTO (at best by both) (2).

Preparation is alfa and omega, but it is not only about perfect pitch deck, but other materials like:

  • product teaser
  • meeting protocols
  • references from early adopters
  • cap table
  • KPIs, CAC/CLV analysis (customer acquisition cost/lifetime value)
  • finance plan for 5 upcoming years (3)

Do not forget to create „FOMO“ aka fear of missing out by scheduling meetings with decision-makers within few weeks after submitting your pitch deck.

Money over people?

Nonsense, as the investor invests into the team so the team chooses the investment according to the investor. Ask yourself Do we share the same values, do we trust each other, and have mutual sympathies? At the end of the day, you want to have an investor along your side who you completely trust and you are happy to work with, that means „KYI“ aka know your investor. In order to find such an investor you should not be using the machine gun approach but on the contrary, do your homework and shortlist the relevant investors. Decide based on their: verticals, stage, portfolio conflict, fund vintage, references, possible signaling effects (4).  

Never stop talking

You can consider fundraising as closed once you received the money never before. Therefore you should not stop talking to other potential investors, try to use a warm intro, and do not forget to sign NDA. Bear in mind that to avoid finishing one founding round and starting another one, the investment should cover at least 18 – 24 months of your runway. The most typical form of investment is straight equity or a convertible loan which is fast and cheap. Last but not least think about your 100 % owned company and do not give up its shares so easily, basically try to avoid giving more than 5 % to non-operational parties (advisors) and keep the external investors under the 25 % of the company (5).

Fundraising or not, that is the question!

 

Many thanks go to our partners SpinLab and ZONEcluster

 

Karolína Krámková

Communication Manager

PowerHUB