When it comes to securing funding for businesses, especially start-ups, Steve Maarbani has a wealth of knowledge and experience to share.
As CEO of the crowdfunding platform VentureCrowd, Steve is regularly called upon to help start-ups raise capital, from crowdfunding to venture capital investments. He has also served as judge of a number of venture capital funding competitions, and as an advisory board member for a number of high-growth start-ups and funds.
His stint as a judge allowed him to witness both funding successes and failures. But what does a judge or investor like him look for when choosing a business to support?
What potential investors want to find
“Different investors will have different criteria,” Steve shares. “But what we hear from the investors who use our platform is that they are looking for businesses that are environmentally sound, technologically innovative, and likely to deliver great results.”
Of course, many businesses possess such qualities and as such, the competition is tight and fierce. Given the situation, it is important for businesses to stand out and present a unique and compelling case.
Steve elaborates, “You must have the fundamentals right – technological or business model innovation, ideally with some initial traction and proof of growth potential, and a great team solving an important challenge for your customers.”
More importantly, the business should be able to tell a compelling story that encapsulates its vision and achievements. “Great founders and business leaders captivate investors by sharing compelling stories that highlight what their business is achieving and why it’s worth backing,” Steve explains. “It’s about sparking excitement and building confidence in your vision, making investors eager to invest in your journey.”
The founder gets evaluated, too
But pitching to potential investors does not just involve showcasing the business. The founder must also showcase their own skills and qualities and show potential investors that they are well-equipped to steer the business towards growth.
“The founder needs to demonstrate many qualities, including strategic, technical and execution skills, plus hustle, resilience, correct mindsets, and emotional intelligence,” Steve says.
Perhaps the most important of these qualities is the ability to communicate effectively. Steve explains it as the ability to know when there is either an opportunity (milestones and wins) or a requirement (quarterly and annual performance reporting) for communication, what that message should be, how to craft it for maximum impact, and how best to deliver it to the relevant audience to achieve the best possible outcome.
“The ability to communicate effectively will help a business raise capital faster. Without it, no matter how solid a product or strategy is, real success will remain a challenge,” he points out.
No guarantees when raising funds
Whether the business chooses to seek out angel investors or take the crowdfunding route, it must take into account the long process involved in raising capital.
Depending on the target amount the business needs to raise, the process can take as long as two years to complete. Much of this time will be spent gathering interest from potential investors.
What if you’re not able to secure funding? Despite lengthy preparations and well-crafted pitches, not every business is able to reach its targets. Steve says this is not the fault of the business.
“Not all businesses are suitable for pursuing the venture capital route to raise funds,” he explains. “Traditional venture capital firms typically focus on businesses with unusually fast growth potential, targeting high returns to match their high-risk profile.”
An alternative emerges
While many small businesses look at either angel investors or crowdfunding to raise capital, Steve shares that there is a third option that is emerging: digital capital raising.
Digital capital raising primarily connects businesses with retail investors by providing access to retail, wholesale, and institutional investors in a single platform. It also speeds up the capital raising process, as it can be used to complete it in just two or three months.
Digital capital raising allows the business to test out the market’s interest first through a flexible Expression of Interest phase and establish meaningful investor relationships before the capital raising campaign even goes live, increasing the chances for the business to reach its target funding.
Steve adds that digital capital raising offers more flexibility, accommodating businesses at various stages and growth speeds and can work hand-in-hand with traditional investing mechanisms.
“Companies with exponential growth ambitions can leverage digital platforms to access a broader pool of retail, wholesale and institutional investors,” he shares. “Similarly, founders seeking to bootstrap can use these tools to raise capital from family and friends efficiently. Founders opting for linear rather than exponential growth may choose to rely on consistent revenue without the need to raise capital.”
Even though there are now multiple viable funding options that are available to small businesses, Steve advises them to take their time, especially if they are not able to prove their capabilities to potential investors. After all, there have been companies like Canva, Airbnb, Uber and Facebook, which underwent multiple rejections before they found the investors who believed in their potential.
“Investment is about capturing the growth potential of the market at a given time,” Steve explains. “If investors aren’t on board, then maybe now isn’t the right time for the market, and you need to demonstrate more growth to attract those investors.”
For Steve, it does not hurt for the business to set modest funding goals and aim to attract a smaller pool of investors. “Digital capital raising platforms offer seamless solutions to make bootstrapping much easier, allowing you to raise smaller amounts efficiently from family, friends or loyal customers, while maintaining control over your business,” he suggests.
This article first appeared in issue 47 of the Inside Small Business quarterly magazine
