5 essentials for an Investor-ready startup

Startups can raise money almost from day one of their inception, and the valuation of the startup will reflect their traction and potential. There are startups that raise money “with only a pitch deck” to show for themselves, from their first backers (usually friends and family). 

However, even if you are just getting started, you need to have some basics in place before you can raise money from investors. 

We spoke with Barak Peled, an investor and startup advisor, and the managing partner of DR-Ventures, to get his list of 5 essentials for startups before raising capital. Here goes: 

1. Comprehensive Business Plan: 

Beyond just having an idea, you need a clear business plan. True, you will most likely change and adjust many times as your startup evolves. But you must build a business plan nonetheless, because without it you will not be able to portray a clear picture to your investors, as to why they should believe in your potential and future. You also need it for yourself, to understand the road and challenges ahead, and to build conviction in your own game plan. This is a complex challenge, so consider getting professional help from an experienced advisor in your market.
Building your business plan or model includes the following: 

A. Start with your assumptions: 

Start working on your financial model with a clear list of assumptions. This should include projected sales, pricing, deal lifecycle, and costs. Assumptions are crucial as they form the foundation for the financial projections in the business plan.

B. Research and Validation: 

Naturally, you cannot do without market research. Even simple Google searches can provide valuable insights into factors like market occupancy rates, average pricing, and customer behavior. This research helps validate the startup’s idea and refine the assumptions in the business plan.

C. Financial Projections: 

The business plan should include detailed financial projections, such as profit and loss statements and cash flow forecasts. These projections are tied back to the initial assumptions. They are important for telling the financial story of the startup and demonstrating how the business will become profitable over time.

D. Understanding Market Size and Niche: 

Think thoroughly about the market size and niche your startup is targeting. This involves understanding not just the total addressable market but also the segment of the market that the startup is specifically addressing.

2. Telling your story

You need to be able to convey your story to investors in a convincing way. That will not happen without the proper preparation. That includes: 

A. Crafting your story:

Based on your business plan, you should be able to build a convincing and compelling story. Find the most important pieces of information to focus on, and include some real, hardcore data to back your assumptions. 

B. Refining Your Pitching Skills 

This part is often neglected by founders, but it can make or break your success. Learn to be convincing and charismatic to win investors over. Constantly practice your pitch in diverse settings to enhance your presentation skills. Be prepared to pitch at any moment, ensuring you can concisely explain your startup’s value proposition.

C. Effective pitching materials

Develop two versions of your pitch deck: one for live presentations with more visual elements and another detailed, reader-friendly version. Focus on storytelling and logical flow. Be sure to give some attention to design and visuals, and have your materials look professional and sharp. 

3. The Data Room

Even if you’re just getting started, assemble a data room containing all key documents such as legal papers, contracts, patents, and press coverage. This aids in due diligence and demonstrates your startup's journey and readiness. Even a Google Drive data room with files and folders that you can share with investors will do at first. 

4. Strategic Planning and Valuation

You need to have a clear idea about how much funding you need, what you will use it for, and how much equity you are willing to give up. Justify your startup’s valuation with market data and realistic projections. This of course stems from your financial plan. 

5. Investor outreach strategy 

You need an effective way to meet investors to raise capital. Identify and research potential investors who align with your startup's industry and stage. Then tailor your outreach messages to each investor, demonstrating why your startup aligns with their interests.

Conclusion: A Strategic Approach to Fundraising Right from the Start

Barak’s advice underscores the importance of a strategic, well-prepared approach in fundraising efforts. By focusing on these detailed aspects – from perfecting the pitch to meticulously planning financials and targeting the right investors – startups can significantly enhance their appeal to potential investors. This comprehensive preparation not only attracts investment but also paves the way for sustainable growth and success.