Determine Your Start-Up Fundraising Ask In 6 Steps

Midven Insights Startup fundraising ask financial requirement to execute business plan

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Raising capital for your start-up is akin to navigating a course through uncharted waters. Central to this expedition is determining your fundraising ask, a pivotal figure that can shape the future trajectory of your business. To negotiate this process effectively, the underlying principle is to align your fundraising ask with a clear growth objective. Once the picture of growth is clear, it becomes easy to figure out what resources are needed to achieve that growth objective. 

To shed light on this intersection, we turn to Davies Okeowo, business finance specialist at Oxford Innovation Advice. Continue reading as he outlines the steps to determining your start-up fundraising ask:

How to determine your start-up fundraising ask

Your fundraising ask is the primary resource needed to fuel the execution of your growth strategy. Once you have identified your growth objective and the strategy to achieve it, you can determine how much investment to raise using the steps detailed below, which will ensure your funding ask is both well-researched and defensible in investor conversations.

 

STEP 1: Understand the current state of your business

Before setting out to raise capital, it is imperative to take stock of your start-up’s current position i.e. your revenue, user base, market traction, product development stage, and current cap table, among other factors. Understanding where you currently are provides a foundational understanding of what resources are required to propel your business forward.

The perspective you gain from this “positional analysis” will help you identify strengths to leverage and weaknesses to address. Additionally, consider the competitive landscape and industry trends to ascertain your position relative to peers and potential competitors. This introspective analysis serves as a crucial foundation for determining your fundraising ask, ensuring it aligns with the realities of your business, while facilitating a methodical and balanced growth.

Moreover, evaluating past and current performance provides insights into cash burn rates and operational efficiency issues. Whether your start-up is in its early stages or already generating revenue, a thorough examination of the current state lays the groundwork for informed decision-making in the fundraising process.

 

STEP 2: Define growth objectives

Defining clear and measurable growth objectives is paramount in guiding your fundraising efforts. Whether it is getting a product to market, achieving a certain revenue milestone, capturing a specific market segment, or expanding operations, your objectives should be ambitious yet attainable. Additionally, the focus should be on objectives that you can execute in the medium term (1-3 years), but also aligned with your long-term vision for the company.

Furthermore, ensure that your growth objectives are rooted in a deep understanding of customer needs and market dynamics. Conduct market research, gather customer feedback, and analyse industry trends to inform your strategic direction. By aligning your growth objectives with market opportunities and customer demands, you increase the likelihood of attracting investor interest and support. Ultimately, defining precise growth objectives provides a roadmap for your fundraising efforts, guiding investors towards a clear understanding of the investment opportunity and potential returns.

 

Follow our guidance on how to create a successful growth plan for your start-up.

 

STEP 3: Explore alternative paths to achieve objectives

Although there are many ways of accomplishing a growth objective, many entrepreneurs default to whatever path they are already familiar with. For example, a founder with LinkedIn ads experience is likely to deploy LinkedIn ads in achieving their customer acquisition objectives. While this is not a terrible thing, it can often lead to suboptimal outcomes and expensive errors.

A better way to go is to critically evaluate alternative ways to achieve the set objectives. This can be done by brainstorming to identify all the potential channels, and thereafter having detailed conversations with subject-matter experts to evaluate the fit of each channel to their context (i.e the objective, timeline, and budget). Each path will present unique opportunities and challenges, hence requiring careful consideration of all factors before deciding on what channel to adopt. 

 

STEP 4: Selecting the execution path

With a spectrum of alternative paths evaluated, selecting the most viable execution strategy becomes paramount. This decision hinges on a holistic evaluation of factors such as market demand, competitive landscape, resource availability, and organisational capabilities. Assess the feasibility and scalability of each path, considering factors such as time-to-market, cost-efficiency, and potential barriers to entry.

Furthermore, consider the strategic fit between your chosen execution path and the overarching objectives of your start-up. Ensure alignment with your core competencies, differentiation factors, and long-term vision. Additionally, seek input from key stakeholders, advisors, and industry experts to validate assumptions and gain diverse perspectives. Ultimately, selecting the execution path that maximises value creation and minimises risk sets the stage for successful implementation and growth.

 

STEP 5: Calculate the cost of execution

With your chosen strategy in mind, meticulously estimate the financial resources required to execute your growth plan. This entails factoring in expenses such as hiring talent, marketing initiatives, customer acquisition, product development, infrastructure investments, and operational overheads. Build a financial projection to forecast the cash flow needs of the business as you execute the growth plan over the selected timeframe.

 

Looking for more advice on your financial strategy? Learn about these four key areas of a startup’s financial strategy.

 

STEP 6: Incorporate a cash cushion for unforeseen events

While thorough planning is essential, the journey of entrepreneurship is fraught with uncertainties. As such, it is prudent to incorporate a buffer in your strategy execution budget to weather unforeseen challenges or capitalise on unexpected opportunities. This cash cushion provides resilience and flexibility, instilling confidence in both investors and your internal team.

 

Conclusion

By methodically addressing these key questions, you arrive at a well-informed fundraising ask that reflects the strategic imperatives of your start-up. This figure isn’t arbitrary but rather a product of careful analysis, market insights, and growth aspirations. Moreover, it serves as a cornerstone for meaningful discussions with potential investors, demonstrating your diligence and vision as a founder.

In essence, determining your start-up fundraising ask requires both strategic foresight and operational awareness. It’s not merely about seeking capital but rather about securing the resources necessary to propel your business towards a clear growth objective. With this as your compass, you’ll be able to navigate the fundraising landscape with confidence and conviction, and hopefully secure the capital you need to grow your business.

Midven Insights Startup fundraising ask financial requirement to execute business plan

Davies Okeowo is a seasoned entrepreneur and investment readiness expert on a mission to stimulate growth in businesses, people, and enterprise ecosystems. He is a business finance specialist at Oxford Innovation Advice, delivering Business Growth West Midland’s Investment Readiness Programme. He has directly supported over 300 start-ups and has trained more than 4,000 across various programmes.