Fundraising for startups: what, how, when and where?

Fundraising, what I consider the art of selling, has always been an interest of mine. If you keep up with the local, regional and global startup scene, you will get astonished by how many innovative startups exist that sometime fail to raise funds for their ventures. On the other hand, you will feel weird knowing that a “stolen" business model, as many entrepreneurs prefer to call it, actually got way more funding than anyone have anticipated. For me, it all goes back to it being an art that few know how to master! When it comes to fund raising, many variables come into play: your startup team, stage, in addition to business impact, sustainability, profitability, scalability, industry, and many more have a say in evaluating your startup and making it investment ready (and worthy). So, as a startup in its early stage, how shall you go about it all and master that art? 

Yesterday, we hosted at Launch DXB in partnership with Microsoft for Startups one of the funniest, most interactive and informative panels to date! We invited Talal Tabbaa - COO & Co-Founder of Jibrel Network and Walid Daniel Dib – CEO of Addenda Labs for a "How to Navigate Fundraising in the Time of Coronavirus” online panel, which was moderated by Noor Salama, Ecosystem Community Manager at MAGNiTT MENA. The session took our audience, who was a majority of early stage startups on a ride to explore fundraising overall, to access the latest funding insights in the startup ecosystem, to learn how to raise funds especially during these challenging time, along with other discussions. Interested to know what we learned from the session? Here are some key takeaways I captured. 

For starters, what is the difference between a seed fund and a series A fund as defined by Walid? Seed fund is what you receive when you have a Minimal Viable Product (MVP) OR a Proof of Concept (POC) and your prospect investor is a brave risk-taker, to take such a risk with an early stage startup. Series A is when you have a more established startup, one at the stage of revenue generation and beyond, which attracts investors. As defined by Walid and seconded by Talal, a startup needs a MVP or prototype to raise fund, as it is quite challenging for entrepreneurs to raise funds with ideas only. Still, these are no guarantees that a startup with MVP will receive the funds it needs. In fact, Talal has been noticing a common trend where it is becoming much harder for startups to raise funds at the seed (early) stage. But once done and once a funding round is announced, you will start to see some investors ask about you and approach you for further rounds, and it all goes back to the witnessed support from Venture Capitals (VCs) in the region, as the panel added. So, can we say a one round can get others rolling?

Regardless of the chances, for Talal a startup founder is to best start speaking to investors the moment they start having an MVP, the moment they have something to show. Walid adds that you should think ahead and raise funds at least 6-8 months before you start needing the money. You should never wait until you need money, because by then, you will burn your chances to meet your arising needs and with your situation, you will not be able to have a much room for negotiation. Well, Walid says “I am always raising and open to discussions with VCs and angels.” I do believe this is a great mindset to have: raise funds even when you are not in need at the moment. Anticipate the future and be ready for it!

Once you decide to start raising funds, you have to explore ALL options. Don't limit yourself to one approach to raising funding, as Talal advised us all. You got plenty of options in the ecosystem. Both Walid and Talal advised early stage startups to start with accelerators, especially governmental programs that take no equity. For Talal, your startup equity is the most valuable asset you have.  Don't give it to one size fits all accelerators. Not only this, watch out for board seats too! Don’t rush and give them out too soon. To add, in investment negotiations and talks, don't spend too much time with/on one investor only. Don't drain too much efforts on one investor. Do give them time and briefings needed to understand the space and know the exposure you have for them, but don’t waste all efforts to convince one investor only, there are many investors you can approach instead, shared with us Talal. 

For startups raising funding at the moment, Walid says you should keep in mind that founders during these challenging times have to prove not only that their valuation, use case and team are worthy of investments, but also convince investors to spend cash when every economist is telling them to hold onto their bags. So, be careful of that!

But, wait a minute, what attracts and invites investors to write down cheques for startups in the first place, asked Noor. For Talal, it is when they find the founder that has common sense not to drive the company bankrupt, one who is sane, YET, one who is willing and is to think in different ways outside the box to bring new opportunities and introductions to the company. As for Walid, it is mainly that investors invest in teams! This especially applies to super early stage startups. 

Before ending the webinar, we heard one last pieces of advice from the speakers, where Talal shared that it is not the strongest or the most intelligent startup that survives, but the ones who adapt, change, and are resilient. Walid said: personalize your pitch to investors, show that you have done your research. Also, lack of ego is key. For him, one should be open to comments and notes, and should use criticism as an advice for improving a product, service, or idea!  

So, what, how, when, and where will you raise your first fund?