If you’re in the early stages of building a truly ambitious FinTech startup, you’ll almost certainly need external funding to get it off the ground. But fundraising is seldom simple or straightforward. You’ll be asking investors to stake their hard-earned money in you.
They’ll want to be sure that you can give them a good return on their investment.
Why You Need To Raise Money
The initial funding you’ll raise after launching your startup is called ‘seed capital’. As the term suggests, founders and founding teams seek this because it’ll enable them to get through the first few months or a couple of years of fashioning a successful company.
Startups typically use the seed funding to hire quality staff, finance marketing and public relations, and drive sales. It’s basically utilized to take a startup from prototype or MVP stage to significant market traction—a goal that every founder would love to achieve.
When Should You Raise Funds?
Ideally, FinTechs should seek funding when they have defined their target market and understood who their customer is. Your product’s user base must also be growing at a rapid rate.
Investors want to back founders with impressive ideas and startups with compelling brand stories. But they also want to be certain that the products of the companies they fund are fit for the market they’re being sold to.
Before seeking the financial support of an investor, be sure that they are right for you. And make sure you’ve assembled a team with decent credentials as well (in terms of education, prior experience, etc.). Finally, you should have a business plan containing things like your marketing strategy, financial analysis, and other important details about your startup.
How Much Should You Raise?
There’s no fixed answer to this question. However, the amount of seed capital that startups raise is often tied to their valuation and future potential. There’s more about valuing your venture in our article, How to Determine the Market Value of Your Business. Experts advise that founders look for funding that will enable them to make significant progress within 12 to 18 months.
Founders should consider how much of their stake in their company they’re willing to give up to investors. Ultimately, the amount you intend to raise must be based on a plan that both you and your potential investors believe is realistic.
Historically, FinTechs in Nigeria has secured seed funding of between a few hundred thousand dollars and well over $3 million.
Where Should You Get Your Funding From?
FinTechs can raise seed funds from Venture Capital (VC) firms, angel investors, and incubators/accelerators. They may also choose to go the crowd-funded route. If you’d like to learn more about funding sources for FinTechs, read our article, 4 Ways to Raise Funds for Your FinTech Startup.
How To Find And Engage Investors
There are a large number of angel investors and VCs looking to invest in FinTechs. You can come up with a sizeable list of those, and pitch your startup at them. Just be sure you’ve studied their investment track record and understand why they go for the companies they choose to fund.
We’ve explained how to pitch to investors via email in our articles linked here (Part 1) and here (part 2).
You’ll want to schedule meetings with as many potential investors as you can. When you do land those meetings, aim to get another meeting with them; they are unlikely to decide to fund your startup after a single session.
While engaging prospective investors, be as precise and succinct as you can. But do give detailed explanations when this is requested of you. Your goal should be to win them over with the credibility of your dream and brand story and make it clear that you and your team are best suited to make these things work.
A Note OnNegotiations
Remember, VCs and angel investors will be more experienced at negotiating deals than you are. So it’s important that you consider their points and offers carefully. You’d do well to not respond to their offers immediately. Instead, seek the advice of a legal counsel who’s well versed in matters like this.Featured Image Source: Fortune
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