Fundraising is one of the main goals of all managers and owners of small to medium-sized businesses. Most of the start-ups that decide on and succeed in raising funds are more successful in the market, compared to their competitors. However, in recent years, the world of investment in France has evolved considerably.
Is raising funds really necessary to develop your business?
Most of the big players in the entrepreneurial world seem to agree that fundraising is highly beneficial for small to medium-sized businesses. Is this approach truly effective? Is this the best method for the development of a business? The best way to answer these questions is to focus on the numbers.
As an example, the Paris-Saclay ecosystem generates new businesses every year. Seeing this, small to medium businesses will naturally be convinced that to develop their businesses, whatever they are, fundraising is imperative. This approach is widely recognized and accepted in the realm of start-ups.
However, over the past few decades, investment formulas have evolved rapidly. It must be said that the support structures themselves have not evolved so well over the years. As yesterday’s investors focus on tax regimes and tie themselves a little more to industry, new players in the investment world who are more digitally oriented keep emerging.
Thus, if, for the last ten years, small and medium-sized companies have tended to raise funds for a tech project, today’s investors are more interested in companies capable of increasing their turnover. Indeed, currently, there are many tech ideas that turn out to be very interesting. However, when it comes to volumes, fundraising is more focused on small businesses playing in the digital world.
It must therefore be said that the theory of development of a start-up is very different from the reality. Despite the amount of advice given regarding fundraising, there are always many failures.
The different kinds of entrepreneurship and financing
The reality revolving around the evolution of small businesses is hidden behind a long-idealized image. Similarly, fundraising is a little more delicate than what most are led to believe.
In the case of small and medium-sized businesses, we tend to idealize start-ups that are successful in their fields. We assume that the path they have taken is the one that leads to success. However, differing societal and economic factors across the globe means that there cannot be a one-size-fits-all strategy. It is therefore essential to analyze a business’s particular problems to better solve them, instead of blindly following the route taken by start-ups which have very quickly succeeded in their field.
There are 3 distinct types of entrepreneurs. The first category includes those who accept the slow growth of their society. This is often the case with family businesses, entrepreneurs who prefer self-financing and therefore are in no rush to raise funds. Entrepreneurs who turn to bank loans and aim to generate their turnover are also part of the lot. Each of these types of entrepreneurs agree that their business is going to grow, but at a very slow pace.
The second category includes entrepreneurs who take part in the endless race to raise funds despite the capital intensity of their activity. They therefore agree to rely completely on their investors for their professional strategy to develop their activity.
As for the third category, it is made up of entrepreneurs who, in the first place, chose to go for traction walking. When they saw the inefficacy of their chosen path, they decided to turn to a new phase of growth which may require fundraising to be effective.
Let us focus more on this last category. To do or not to do a fundraiser is a question that no longer arises. The questions that arise are rather: for what reasons should we raise funds? When is the best time to do it?
From the perspective of most new entrepreneurs, the issue of fundraising is particularly important given that successful companies believe that the funds they have raised will be used for the development of their first product, which is not an extraordinarily successful strategy.
To better attract the attention of investors and accelerate your fundraising, you must first ensure that your business is valuable. Otherwise, there cannot be a good return on your investment. But what is it that really makes a business valuable? Isn’t it its client portfolio? It must therefore be said that without sales, fundraising is not possible.
Develop a pre-product and a pre-solution to raise funds
Any business is seen as most valuable when it has a lot of customers. Take social networks for example: the more members they have, the more valuable they are. Thus, without sales, fundraising is not viable.
To show investors that your business is worth funding, you need to start by finding the best ways to get more customers. For this, consider developing a pre-product in the market to promote your company. Adopt a pre-solution to be in better contact with your customers.
In addition to attracting the attention of investors to your business, launching a pre-product will allow you to verify and prove that you have profitable projects, ambition in the market, and that you know how to attract customers (and therefore money). You will be able to better explain that these profits will multiply if your company acquires investors, which will result in profit for you as well as investors.
Although you lack resources as a start-up, you must put effort into developing a pre-product and finding the means to sell it since without sales, fundraising is not possible. You must consider that, like everyone else, investors are looking for returns on their investment. So, you have to prove to them that your business and your projects are worth it.
To achieve this, you must take into consideration all possible means of financing. In most cases, start-ups use their personal funds and effort to design a pre-product. In the case of insufficient funds, they might ask for help from their relatives, families and friends. In the worst-case scenario, they find themselves forced to turn to several types of financial assistance, such as bank loans. However, obtaining this kind of financing is no easy task.
Consider all avenues which could result in a budget to get started. Take, for example, the Bpifrance French Tech scholarship. This is a fund which aims to finance the initial expenses of a deep tech start-up. You can also apply for honor loans which can turn out to be very advantageous since they are without collateral or interest. This is for example the case of Wilco and Réseau Entreprendre. You can also trust business angels to find funding through their networks.
When you have spent the funds you received in launching a pre-product or pre-solution, you should be successful in raising funds. For this you need to pay attention to some points. You must first put in the time it will take to find these funds, although this time seems to exceed what it takes to grow your business.
The choice of employees to contribute to the capital of the company must also be made with the utmost care. To do this, you need to make sure that they are people who can handle the second round of funding when you have attracted an investor. It must also be able to support the growth of your activity in the best way to better optimize its values.
When you have received the investment you need to grow your business, you need to get used to the idea that your company is going to enter a field focused on hyper growth. You need to be prepared for the fact that growing your business also increases the pressure that every employee, including the manager and owner, must endure. However, if you succeed in selling and raising funds, this pressure is well worth it.
Your Intangible Capital represents 60 to 80% of the value of a company. You cannot make informed decisions without accurate information.
Intangible Capital Value provides its clients with one of the best tools on the market, which is quickly accessible, often with an immediate ROI.
Presentation : Geotrend presentation – YouTube
Articles in French by the same author : Erwan Coatnoan de Kerdu, Author at Startup Info
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