Strategising the Second Funding Round

I recently looked at what businesses and entrepreneurs should be considering when they approach the question of raising capital investment.

For startup owners looking to up the ante and accelerate their growth, a second round of funding may well be something that arises further down the line. It will, however, require a lot of work. A first pitch should be based in reality, but it can always be hopeful.

During a second round of funding, however, pitching will be based on a retrospective look at business performance and return on investment. If CEOs can prove they used the funds from their first round properly, attracting further investment, essential for further scaling, will be a lot easier.

As always however, the devil’s in the details. So, how can business owners strategise the second round of funding?

Don’t Lose Track Of Your Bottom Line

Trying to prove that they made good use of the money they got so far is a good strategy for startup owners looking for more funding. However, it shouldn’t be the entire focus when trying to raise funds for a second time. The fundamentals of pitching to investors should still be there.

Here are some of the most important things startup owners should keep in mind when pitching, at any level:

  • A good business plan is important. Startup owners should have an established strategy, target audience, company values, product, and plan for market penetration. A strong grasp on business fundamentals is a good sign for investors.
  • Research. If a startup owner comes into a room full of investors without much other than enthusiasm, they’re less likely to secure funding. On the other hand, if investors see a startup CEO has a good grasp on the market they’re in, and even future predictions, the chances to secure funding are increased.
  • A showcase of the product. Financial predictions and a thorough budget are important, but nothing gets the point across better than a real-life example. Startup owners should aim to bring investors as close to the real experience of their product as possible. Of course, not all products are easy to adapt for use in a pitch. A warehouse management solution, for example, can’t be adapted for limited use in a presentation. However, startup owners can include testimonials, or videos of the product in action.
  • A diversification of funding sources. Like most things in business, securing an investment can be a numbers game. Reliance on one investor can lead to a slow process when raising funds. Second rounds are no different, even if startup owners already have investors, business angels, or VC funds to pitch to.
  • Resilience. Startup owners that already went through a funding round can probably understand this best, but it’s still important to point out. Pitches do get refused. It happens. The same way some leads don’t end up buying. It’s a normal part of the process, and resilience is the only way to move forward and secure a second round of investments.

Startup owners looking for a second round of investment should also understand what secured them funds the first time around. Whether the “X” factor was an outstanding team, an innovative product, or a flawless presentation style, retrospective is important. CEOs looking for a second round of funding should identify what worked before, and double down on it.

The Investors On Board: A Good Idea?

After a first round of funding, good investors will get involved in the business’ operations. Not to micromanage, or oversee every single detail of a startup. Rather, to impart their knowledge, expertise, skills, and network to help accelerate a startup’s growth.

Reliance on investors for a second round of funding can be fruitful. If a CEO provided results for the investors, and convinced them that the startup can scale with more funding, a second round of investments won’t be hard to secure.

But there’s more value startup owners can get from their existing investors. Networking is a big part of securing funds. Networking honestly, and without a motive even more so. Startup owners can do that too. But investors usually mingle more, and have a large network of contacts they’ve established without expecting a big second round of funding.

Investors can call upon that network to help with a second round of funding. It’s not the only approach startup owners can have, but it’s a good avenue to contact investors.

Telling A Clear (And Good) Story

Storytelling is important when pitching to investors. That’s no secret. Beyond the data analysis, due diligence, and expertise, investors are people. Telling a good story about a startup that saw an opportunity, seized it, and made the best out of the funds it secured so far is a surefire way to gain a room’s attention.

But the story shouldn’t end in the present. To secure a second round of funding, startup owners have to tella clear, convincing story, of why they need more funds, what they’ll use them for, and how they can vouch for results in the long term. The facts used to prove these statements can vary a lot, from new market opportunities, to international expansion, but the statements need to be there if startup owners hope to secure a second round of funding.

So What’s The Strategy?

The strategy to secure a second round of funding should include these elements:

  • Good business fundamentals
  • Avenues to contact investors – which include relying on existing backers
  • A good story about the startup, and its future

Individual startups, niches, investors will each have their own perfect approaches to investment, and there’s no one size fits all strategy. Like most things in the startup world, securing a second round of funding is a dynamic activity that may see CEOs reacting to developments along the way.

There are simple principles however which, if adhered to, can maximise the chances of securing the second round of funding, and taking your start-up to the next level.