For a startup, raising capital is not just about securing money. It is also about convincing investors that the company has a strong opportunity, a credible team and a clear path for growth.
How a funding round is positioned and communicated makes a difference.
Funding rounds are discrete stages of investment that allow a startup to raise capital in exchange for equity, or ownership, in the company. As a company moves through the different funding round stages, from Pre-Seed and Seed to Series A and beyond, its funding needs, objectives and investor audience evolve.
The way the opportunity is presented should evolve with them.
Promoting a funding round can help increase a startup’s visibility and reputation among relevant investors, making the fundraising process more effective. Therefore, the objective is to communicate the company’s value proposition, traction and investment opportunity clearly to the right investors, at the right stage.
This is why fundraising strategy and communication strategy should work together. From defining the company’s positioning and preparing investor-facing materials to building visibility and maintaining momentum throughout the round, each element can contribute to how investors understand and evaluate the opportunity.
What are the different funding rounds for a tech startup?
The sequence of funding rounds for biotech, cleantech and foodtech startups typically follows the evolution of the company’s product development cycle and commercial traction.
While each company and market has its own features, investment stages can be broadly summarised as:
- Pre-Seed: often self-funded or supported by the so called “3Fs”: friends, family and “fools”, to develop an initial concept or prototype. At this stage, a very important category of investors often comes into play, the Angel Investors;
- Seed: in this stage, capital is typically used to validate product-market fit and build the core team;
- Series A: often focused on deploying the business model and scaling commercial traction;
- Series B: typically focused on increasing operational efficiency, margins, volumes, as well as keeping up on the professionalisation of the different teams/departments;
- Series C and beyond: later-stage funding for international expansion, acquisitions or preparation to transition from a privately owned company to a publicly traded one on a relevant stock market, via initial public offering (IPO).
The exact structure varies considerably between companies and sectors.
How do funding rounds work?
A funding round is a structured negotiation between founders and investors. While the relation and nature of the parties involved determines a lot of the dynamics of the round, four broad stages are particularly important:
- Pitching and connecting;
- Due diligence and trust building;
- Valuation and negotiation;
- Closing and investment.
A consistent brand identity and compelling outreach activities can support founders throughout these stages by helping investors understand the company, its market opportunity and its potential. Trust is often built also on communication.
Below we are taking the liberty to share a few key questions about funding rounds, from the different stages of investment to some elements on how startups can position and promote their round effectively. You are welcome to reach out to us if you want to know more, or discuss a specific case.
How many rounds of funding can a startup take?
There is no general legal limit to the number of funding rounds a startup can raise. Yet, each round is likely to produce dilution, or a reduction of the percentage ownership of the original founders vs the total ownership by all parties involved (the so called “cap table”). Founders need to consider the consequences of each round, and seek the sweet spot between a high and a low valuation: in fact, raising capital at a low valuation can lead to significant dilution of the founders’ ownership. At the same time, an excessively high valuation can create challenges in subsequent rounds if the company fails to deliver the expected growth. This is why fundraising should be considered not only in terms of how much capital a company can raise, but also when, from whom and under what terms.
Where do I start with my next funding round?
Before approaching investors, you should establish clear and specific milestones for the growth and technical achievements that the new capital will unlock; it is in fact important to have a clear view on the sought “use of capital”. You should also be able to explain clearly how the capital will be used and why the investment is needed now.
Finally, make sure that your company can communicate its market value, credibility and investment proposition clearly.
A strong branding, marketing and reputation strategy can make a significant difference in how investors perceive the opportunity.
Why do some entrepreneurs struggle so much with raising capital?
Obtaining funding rounds can be extremely difficult, even frustrating. First of all there is a very big competition, as there are many entrepreneurs out there who believe that their idea and/or technology is the best, and that it shall be funded on its own merit, as such. Investors, and especially Venture Capital (VC) firms, are regularly bombarded by hundreds of applications per month, not all of which are relevant, yet many are. Furthermore, investors’ priorities vary from investor to investor, as well as for the same investor over time. Furthermore, some sectors follow to some extent “hype” cycles. Furthermore, investor interaction requires significant effort, even before the formal due diligence stage. Furthermore, most of the time it is a collective of investors (the so called “syndicate”), rather than a single one, that needs to be involved to close the round, thus further complicating the matter. The landscape is extremely competitive and scattered, and tiny differences in the company presentations may turn out to be crucial within the investors’ selection process.
Will funding rounds influence the ROI of my startup?
Yes, funding rounds could directly affect the potential return on investment for founders and existing shareholders. If done well, in the best case, capital can enable faster scaling, which may contribute to a higher future company valuation.
However, the terms of the investment also matter. Valuation, dilution, timing and investor selection can all influence the eventual outcome for the original founders.
That is why strategically timing funding rounds, optimising valuations and building a strong reputation are important elements of a long-term fundraising strategy.
What activities does Magfi’s Promote Funding Rounds service include?
At Magfi, via our BioInvestEurope initiative, we have a number of offers designed to help startups promote their funding rounds. It combines brand identity activities, such as logo and visual identity work, with targeted marketing activities towards the general market and/or investor-rich groups and networks.
Startups engaging with us can also access specialised services such as:
- communication strategy and storytelling;
- brand and digital identity (including website) development and refreshing;
- social media management, newsletters and PR;
- corporate communication materials.
The exact combination can be adapted to the startup’s fundraising stage, objectives and existing communication capabilities.
Explore private investment opportunities with BioInvestEurope
Within the BioInvestEurope initiative, we provide a specialised outreach service enabling selected biotech and foodtech innovators to improve their reputation, visibility and positioning, thus making themselves visible to suitable investors.
If you are planning your next (or first) investment round and want to understand where to start from, you are welcome to get in touch with our team to explore your options. You can contact us via LinkedIn or via the BioInvest Europe website.