fundraising early stage business

A telling success factor for new businesses looking to make an impact in their industries is whether they can attract investment at an early stage of development. 

Whether you’re a private company looking for venture capitalist funding or a growth-stage company looking to be listed on a public exchange, early investment has proven critical for inspiring further funding in later rounds. 

This is true even in Canada, where the so-called Canadian advantage allows companies to reach profitability sooner. It’s still critical to attract upfront capital.

Engaging investors early on gives companies greater access to the capital funds they need for hiring key staff, developing new technologies, expanding internationally, and accelerating the business plan. 

For instance, the 2019 TSX Venture 50 companies—which are all growth-stage companies accessing investors on TSX Venture Exchange—reported increasing their employee count by roughly 2,200 people in 2018, representing an average hiring growth of 307 percent. This would not have been possible without the support of their investors.

More specifically, companies are able to see notable success when they allow investors to engage early on. Well Health Technologies, for instance, was able to continue expanding through a scalable acquisition model. And for Drone Delivery Canada and Siyata Mobile, having the support of investors led to partnerships with Air Canada and AT&T, respectively. 

Attracting investors in the early stages helps bring in new partners that are committed to your business. They can expand your network by introducing you to other investors, customers, or partners, helping you to continue accelerating your business plan.

However, new businesses often find the idea of securing investments a daunting task with a lot of moving parts. If you know it is time to bring in investors but don’t know how to get their attention, start by making sure you secure the help you need to attract your investor audience quickly and effectively.

Before even reaching out to investors, it is important that you understand the market you’re trying to tackle—market research.  A lack of market need is the number one reason startups fail, suggesting that companies need a better way of evaluating the state of the market before launching their business within it.

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Savvy investors will be looking for this understanding so they can ensure a profitable return on their investment. As such, your first round of investment will act as a proof of concept for the stickiness of the business concept itself.

Early investors will also be looking for insight into the growth potential of your business. Be sure to demonstrate its potential by clearly documenting key performance indicators, highlighting key customers, and demonstrating realistic revenue projections. Finally, they’ll see the value in a team that hosts key personnel and advisors with proven track records in your industry.

As you prepare to engage your first group of investors, consider incorporating these six steps into your approach.

1. Communicate often

For publicly-listed companies, there are clear obligations for disclosing information to investors—but that is not quite enough. Investors can’t rely on just International Financial Reporting Standards statements to get insight into how a company is doing. These reports can be difficult to digest and often don’t offer real-time representations.

To help investors get an insider view on company growth, it’s important to share meaningful metrics consistently. Communicate early and often to maintain an active interest from your investors.

This also goes for private companies that don’t have the same reporting regulations—investors will always appreciate that level of transparency.

2. Think long term

Look for investors who are buying into the vision that you established at the outset of your business and who will want to participate for the long-term. And when you find them, keep them on board by letting them buy in early so they can see success alongside you.

People love to “average up” by doubling down on winners. If you take less money at a lower valuation, you can then prove the execution of your business and raise additional rounds at sequentially higher valuations.

3. Start early

Start early not by asking for money right away, but by engaging the help you need to structure the next round of financing. This will give you the chance to prove to your investors that you can execute on your plans.

And if you’re looking to the public markets, consider listing early as well. This will give investors a chance to follow your execution.

4. Do not be greedy

Ask for what you need in order to prove that your business model works. Then, structure further financing after that.

Investors will want to continue investing if they see positive results. To start, it’s better to have a little piece of a big pie than a whole lot of nothing, so don’t be greedy. Leave money on the table for other people to win with you, and they’ll be incentivized to contribute to the win.

5. Always be transparent

There’s no straight line to success. Everyone fails and pivots, even big enterprises. If you make a mistake, it is always best to be upfront instead of trying to hide it. Breaking investor trust can have dire consequences.

If you are open about your mistakes and failures, investors who have been with you from the beginning are likely to forgive you—as long as you have clear, actionable steps to correct the course moving forward.

6. Build your profile

Distribution is key in any business, so use branding, partnerships, and marketing to build a profile that represents your company. Social media, content marketing, guest editorials, and other channels can position your company as an industry leader and influencer that investors want to associate with.

If you want to leave your mark on an industry, engaged and active investors will be a major factor in your success. To navigate the public investment landscape and get them on board, start early, communicate often and transparently, and keep them interested in participating in the long-term growth of your story.

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Brady Fletcher

Brady Fletcher is managing director and head of TSX Venture Exchange, the world’s preeminent global platform for facilitating venture stage capital formation.