Tips to fundraise as you navigate a difficult market as an early stage tech founder
Although its stormy times, this is a unique opportunity to build resilience both as a founder and a business but read on for a few tactical tips that might help as you fundraise
Hi, and welcome to AfroFounder where I share fundraising, operating and scaling tips with founders building high growth technology businesses in Africa. I’m Maria and this is the 16th issue. If you’re new - you join 400+ incredible AfroFounders on their entrepreneurial journey. Two FREE resources that might help:
List of Pre-Seed / Seed Investors Investing In Africa
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Now on to the topic of today..
Its hard out there as an early stage founder
It’s nothing you’ve not heard before, but if you’e an early stage tech founder trying to raise for your startup right now, it is hard. Later stage has very little activity and early stage investments are feeling the heat. Rounds are taking longer to close, valuations are under pressure, the bar for traction is higher, and investors are just taking longer and longer to decide.
As you navigate this, here are six tips that might help
1. Be Prepared: Expect It To Take Longer
Fundraising is never easy, and while some founders might find it less hard than others, it helps to expect overall in this market that it will take longer. Why? Because pre-seed investors, although still investing, are taking their time and not moving as quickly. This means more due-diligence, conversations, and looking out for more evidence that they are making the right bet in context of the constrained market conditions.
Fundraising previously might have taken weeks, expect it now to take months. It is likely to be more protracted than before, and you will need to figure out how to balance a long period of fundraising with building your startup.
Also, might be prudent to speak with a longer list of investors. Sometimes, it’s a game of numbers. The longer your qualified list of investors, the likely you are closer to getting a yes with each conversation.
Resource: List of Pre-Seed / Seed Investors Investing In Africa
2.Be Data Driven: Gather Feedback As You Fundraise
One suggestion is to fundraise in bursts, and quite like product-market fit, there is startup-vc fit. If you have say your first ten investor conversations, you might want to pause - and evaluate the responses you’re getting and if there’s a theme. Double down what’s working, find alternate ways to present the narrative of what isn’t.
The difficult thing with this is, many investors don’t give detailed feedback for fear of backlash, so if you want raw genuine feedback you will have to press. To help your fundraise, try to insist on useful feedback from investors and get something substantial to help you tailor your narrative for a more convincing pitch next time.
Here are a few reasons investors might pass, and what they really mean;
“Oh you’re just too early” a.k.a we are not sure you’re the right team so we need more proof points that this is likely to take off. We need more traction.
“Market is not large enough” a.k.a We just can’t see this being a big enough opportunity
“Too competitive” a.k.a We don’t think your solution is differentiated enough
3. Build Solid Traction Ahead of Your Fundraise
Raising for just an idea is likely to be unsuccessful except you’re a serial founder, with incredible previous experience and track record of building large startups.
The bar has moved overall. Its higher. What was great before is now just a conversation starter. What was good, is not good enough. So now you have to work to demonstrate 2x as much traction as before for the same result. With very little capital this is hard, but I guess this is what it comes down to.
What does good traction look like?
Any data point/evidence that proves that 1) people want this e.g, large waitlists, or contracts signed 2) people will pay for it, e.g., pre-paid customers, or contracts /LOIs saying they will and it is big enough 3) early customers are representative of a larger customer base.
4.Target Angels and Angel Groups First
As you commence your fundraise it probably helps to target low hanging fruits first. Friends and Family. For those (many) who have no bank of friends and family, angels and angel groups are a close second.
There are a few interesting groups cropping up. Target these. Getting a green light to pitch to the angel group is usually a good sign, and angel groups are a great way to get lots of small cheques into one large check.
Be careful not to populate your cap table with several small cheques and confirm that they can consolidate all angels into one line on the captable.
Resource: Alumni Angel -Angel Group Investing in Tech Startups Across Africa at Pre-Seed
5. Non Dilutive Grant Funding Is Your Friend
If you are building in a segment that has an impact angle and is a fit for existing grants, this is the time to try that out. Applying for grants is a skill, so expect that this will take a lot of research, and refining but get started anyway.
Find friends, people in your network exposed to this and begin to explore this as another path of financing. This allows you build and prove out certain strong metrics ahead of when the market is much better, and you can resume active fundraise.
6. Find Early Monetisation Channels
One of the feedback you'll probably get is “we just want to see early signs of monetisation/revenue” This is likely because right now, because funding is hard investors want to be sure you can at least make money to get some funding from customers that might help you stay alive.
How do I earn revenue even without a product?
One way is to find customers who will pre-pay even before the product is ready, or sign contracts that show paid pilots.
This is a difficult time but its also an interesting time because as a founder, in a sense this is an opportunity to build resilience for you and your business that could yield compounding results over time.
You’re an entrepreneur, with or without VC funding you will build.
Build. Find a way to stay alive. Then thrive. It’s what you do. Rooting for you.
Till next time👋
Maria
P.s Got a question or in a situation and you need advice? Send them to me here and i’ll share my thoughts.