The search for funding is, for most technological startups and microSMEs, a challenge closely linked to their survival. These companies must invest a significant amount of resources in researching and developing innovative products that allow them to compete in the market they are targeting. In general, the size of this investment forces partners to rely on the inflow of external capital to ensure business continuity until the product generates sufficient funds to achieve break-even. This, therefore, has an important implication and that is that the company cannot afford to fail: it must obtain funding yes or yes. The question that every entrepreneur must ask himself is whether, even though this is a task whose result has a direct impact on the viability of the company, does it add value to the project? Our opinion, based on the successful experience of the last two years helping entrepreneurs to find capital, is that NO, seeking capital is not a task that generates added value for either the entrepreneur or the project. This does not mean, as we warned before, that it ceases to be an essential task that is on the critical path to success. In the same way, creating society from a legal point of view is an essential task to make the project feasible, but it is still merely an administrative process. Although the entrepreneur cannot afford failures, the task of seeking funding in itself not only does not add value, but the opportunity cost can even be lethal. The opportunity cost, understood as the value of all those activities that the entrepreneur “stops doing” because they have to invest their scarce time in the search for funding, is the key concept to truly understand that this is a task that must be outsourced, trusting someone who is expert and specialized, who has the right contacts. The first two priorities of the entrepreneur are to develop the product and sell it (and even selling it must be more important than developing it, although this is a topic for another article) and therefore it is easy to assess this opportunity cost in terms of the sales that could have been achieved if the entrepreneur could have all the time invested in the search for funding. In addition, the effort that must be made by a person who does not have the contacts, knowledge and skills to lead the search for capital for his The project itself is reasonably larger than can be expected from a specialized and expert agent. This, and the scarce added value that this activity brings to companies, is the main reason why even large corporations, all of them, entrust their processes of seeking funding to external agents specialized in operations of this type. However, if the entrepreneur reaches this same conclusion and decides to outsource the process of seeking funding, the next question that arises is how should he be the most suitable partner for this task? Obviously, Good advice is key to success in this type of operations.But what does “good advice” consist of? Our view is that good advice is comprised of 5 key elements:
- It guides entrepreneurs, based on their experience and better to know and understand, honestly and candidly about the possibilities of the project to obtain funding and the time that this may take.
- Facilitates the Reflection on Business Strategy and the income generation model to identify potential underworked areas or small opportunities not yet detected. Experience has shown us that reflecting on one's own business strategy generally produces very positive results and that, at times, they involve a shift of some importance compared to what we had been thinking and doing so far. In this regard, and confirming what we have been observing in our clients, Harvard University conducted a study that shows that more than 90% of successful startups do so with a completely different strategy than the one they started with.
- It facilitates reflection on the Funding strategy, or in other words, the way to obtain as much funding as possible with the lowest dilution for the entrepreneur, structuring the rounds according to the potential progress of the business and leveraging private capital with the public capital available for innovative and/or technology-based projects.
- It provides a Network of contacts with potential investors (whether private or publicly funded) that the entrepreneur does not have.
- Get to know the Preferences of potential investors and can easily identify those with whom there is a certain alignment of interests, characters, market positions, saving precious time searching for the right partner.
A “good advisor” is not only about saving the entrepreneur's time by absorbing tasks that consume valuable time for the entrepreneur, but he also provides a series of elements that complement and add to his own abilities and abilities. Having an external vision of the business, devoid of the emotions that usually surround (and sometimes “blind”) the entrepreneur, reasoning about the best financing options, identifying strengths and especially weaknesses, dealing with them and preparing arguments, developing the tools and taking the necessary steps to structure presentations to potential investors, etc. are the type of help that a technology-based startup or SME should expect from a good advisor. Companies that are able to go to a good advisor to help themselves in The funding search process achieves, at least, 4 key benefits:
- They Get a Bigger Time savings to dedicate to tasks that directly impact the growth of your business: sales! Entrepreneurs don't spend a minute doing the most bureaucratic and administrative tasks in the process of seeking funding, being able to concentrate their efforts on expanding their commercial pipeline, contacting international partners, seeking strategic alliances, etc.
- They have a Higher Chance of Success to finally get the funding they are after. This is due, on the one hand, to the fact that they have access to a greater number of potential investors, which increases the chances of finding the “best fit” between entrepreneur and investor. On the other hand, it is due to the fact that the information that is transferred to potential investors has a higher quality and greater clarity/consistency, which is a direct result of joint strategic reflection carried out between entrepreneurs and advisors.
- Ven reduced search, processing and closing periods for funding In a radical way. In private financing, the good advisor first chooses potential investors according to their “fit” with the project, saving time in unproductive meetings and then manages to shorten the time based on the trust they have previously generated with potential investors, who tend to treat projects that have previously passed through their “filter” with greater priority. In public funding, on the other hand, the advisor manages to shorten time thanks to knowing in detail the protocols and processes for collecting information/analysis/resolution/payment of each of the funding agencies. In some cases where the analysis of the project is carried out in a more personalized way by the public body, the involvement of the advisor also adds extra confidence on the part of the analyst towards the project presented.
- They Don't Assume significant financial risks, mainly because the advisor will collect most of his fees linked to the successful completion of the transaction (success fees) and therefore the company's treasury is hardly impacted.
In short, the benefits of having a good advisor to accompany the entrepreneur on the path of seeking funding are quite clear and, most importantly, aimed at achieving the expected results. Not only do the possibilities and probability of obtaining optimal financing for the company increase, but it is achieved in a significantly shorter time. Meanwhile, the entrepreneur can fully dedicate himself to what is expected of him: the growth and commercial success of the project.
