Fundraising is necessary to guarantee a startup’s survival, as funding the business from one’s pocket in the long term is not feasible for most. It is a process where startups obtain additional cash from investors so that the business can evolve further, including hiring more employees, renting an office space, or product development.
In most cases, founders must present a pitch deck and convince investors that their business is the next game-changer or disruptor in the industry, following in the footsteps of Grab, Gojek, and Lazada.
Sources of fundraising
Regardless of your fundraising goal, there are several sources of funding that you can tap into, whether it is angel investors, venture capitalists, or the crowdfunding route. Each has its benefits and drawbacks, which will be explained below:
1. Angel investor
If you have a time machine, would you want to invest in Google when in its early rounds of fundraising? The first funding of Google came from Andy Bechtolsheim, co-founder of Sun Microsystems, worth US$100,000. Andy can be categorised as an angel investor, a few individuals who invest their money in a relatively new and small business that shows promise and potential growth in the future.
When Google went public in 2004, its initial investment ballooned to US$300 million, a fantastic return in the span of just six years.
2. Venture capital
money to back a startup. By opting for this fundraising route, startups get help from a professional to navigate the uncertainty of the corporate world. It is common for venture capital firms to appoint someone who has experience in the field to fill a managerial or top position in the company. The appointee will be involved in the day-to-day operations and advise founders in their decision-making.
As someone with a long-standing track record in the industry, venture capitalists have connections that might be useful in your business. Knowing the right people to mentor and help you grow the business is crucial. Essentially, they can widen your network and introduce you to like-minded people. Moreover, venture capitalists are not expecting to be paid. They will usually exchange their services with equity in the form of stocks.
More often than not, bringing in venture capitalists for your fundraising means that you give a certain portion of your shares to them, diluting your shares. Additionally, there might be added pressure to expand and grow quickly. They want to see their investment returns as soon as possible by reaching the initial public offering (IPO) or merger stage. Once this is achieved, they will likely sell their shares and leave the company.
Read our Guide on Venture Capital for Startups.
Advancements in technology have made it easier to raise capital over the internet, blurring the boundary lines between geographical locations. Through platforms like Kickstarter or GoFundme, you can get funds from strangers all over the world. The same principle of in-person fundraising applies, meaning you still have to pitch your idea with a presentation showing how your product benefits the masses. A working prototype is usually used.
Wonder about the effectiveness of online fundraising? One successful endeavour was Peloton, the exercise bike equipment that gained popularity during lockdowns. It was funded via Kickstarter in 2013, totalling over US$300,000. In 2019, the company went public on the US Stock Exchange.
The different stages of fundraising
Fundraising comes in multiple different stages that increase in value as it progresses along. They are the following:
1. Seed stage
This is the first stage of fundraising that every startup has to go through. Institutional investors are rarely involved in this stage; instead, you will be relying on angel investors. It is common to have only an idea or a prototype at this stage. The seed money you collect is then used to realise your vision or better an existing prototype to market.
2. Series A
This fundraising stage occurs when you already have an existing product selling on the market. You are looking to scale up operations to meet demands, whether for marketing purposes or hiring employees for research and development. Once you reach this stage, investors will expect figures of how your product is selling and how you will utilise the funds raised to increase sales projections and overall revenue.
3. Series B
Series B round of fundraising is reached when you are ready to expand exponentially, like for example, when you want to expand beyond your country of origin. Let’s say you are a Singaporean company and want to expand your footprint to neighbouring countries, such as Malaysia and Indonesia. The funds received during this stage will be used to fund the operations in these new territories, ranging from hiring employees to implementing a marketing strategy locally.
4. Series C
Once this fundraising stage is reached, businesses have established themselves in the market; it is possible to consider them no longer as struggling startups but rather as thriving businesses. The funds gathered in this round are used to solidify one’s place in the market by scaling up their capabilities and reach locally or overseas.
After each round of fundraising, your business valuation will increase. Once you obtain a certain mark, you will be nicknamed one of the following mythical creatures:
- unicorn: startups valued at US$1 billion
- decacorn: startups valued at US$10 billion
- hectocorn: startups valued at US$100 billion
How to find and vet the right investors?
It can be challenging to get your foot in the door and meet the right potential investors when you are first starting since you haven’t established connections in the industry. While platforms such as LinkedIn and Crunchbase may help you find investors that might be interested in your product, cold outreaches like this are likely to go nowhere. This is where having a fundraising consultant can come in handy.
They are veterans who formerly worked for venture capital firms or former founders who have a good track record of fundraising. Given their experience, they have a vast network of investors that might be interested in your product.
More importantly, they can share insights on how these investors when crafting your business plan or deck since it is the first thing that investors will see when considering investing in something. You have to hook them from the get-go.
Remember, though, the “audition” process is a two-way street, meaning that you are not the only one being evaluated and judged by potential investors, but you should do the same to investors. This entails checking the investors’ track record on the types of businesses they invested in and their contributions that made a difference. At the end of the day, you want an investor who understands your goals and has the expertise to help you get there.
Singapore is one of the ideal places for startups to flourish due to its business-friendly regulations and a wide pool of investors willing to place bets on the next big thing and maintain Singapore’s place as an innovative hub. In 2021, Singapore-based startups successfully secured S$11.2 billion in funding, doubling the amount raised the year prior. By 2022, Singapore was one of the top five performers in Asia according to the global startup ecosystem report 2022.
Make fundraising smoother with a digital corporate services partner
Fundraising can be a stressful and time-consuming process. One way to decrease the stress is to partner with a digital corporate services company that can help you fulfil the requirements and necessary regulations in fundraising.
As one of the leading technology firms that provide end-to-end financial services and solutions for businesses, Lanturn has a proven track record in administering over S$200M in fundraising rounds for our clients, from initial seed rounds to Series C.
At Lanturn, we combine great service with great technology to offer end-to-end financial services and solutions for businesses. For instance, the know-your-customer (KYC) and onboarding process used to rely on emails, PDFs and wet signatures, which took weeks to complete. Lanturn can help you fulfil it in several days.
Lanturn allows investors to upload key documents just with a few clicks and real-time guidance from a Lanturn onboarding specialist that will guide them every step of the way, ensuring not only a hassle-free process but also a speedy one—ultimately increasing customer satisfaction and experience.
Lanturn also gives investors and fund managers instant access to all fund performance reports from any computer or phone with its digital platform. This is in stark contrast with traditional fund service providers, where investors need to contact fund managers to know the performance of their chosen fund.
Afterwards, the fund manager will contact the fund services provider to find the necessary information and relay it back to the customer, a cumbersome process that typically takes days to complete, something that may not gel well with people nowadays as they expect everything to be accessible in an instant, including access to their investments.
Are you starting your rounds of fundraising soon or about to finish one? Contact us now so we can help your raise easier and faster.