Lean startup is a practice for developing products and businesses. The main objective is to curtail startup product development cycles by implementing a combination of validated learning, iterative product releases, and business-hypothesis-driven experimentation.
On the contrary, fundraising is the procedure of collecting voluntary contributions of resources and money, by asking for donations from governmental agencies, charitable foundations, businesses, and individuals. Even though fundraising usually refers to the struggles to collect money from non-profit organizations (NPOs). Sometimes, it also refers to the proof of identity and solicitation of investors or other sources of capital profit oriented product development.
Eric Ries is an American entrepreneur and a blogger. He has also written a book on startup movement called “The Lean Startup”. According to him, here are 5 principles that you can apply to the fundraising process to increase the chances of success.
Let’s have a look.
Your prospective investor is your market whereas your main pitch is your product. Majority of the entrepreneur looks at the fundraising procedure as a progressive set of steps. If you actually follow the iterative mindset, then your deck must appear better after every pitch. However, the majority of the owners utilize the particular deck during the whole process.
In fact, he recommends business owners to initiate the fundraising procedure few months prior to the actual fundraising process. AN MVP deck should be put together and you must ask for feedback from advisors and mentors. Sometimes, they also turn into your investors. You must look at the complete fundraising procedure as a build-measure-learn loop. This is the point where you want to look for feedback to enhance your pitch. You will also want to think regarding sequencing your pitch meetings also.
2. Value Hypothesis.
Value hypothesis tests the probability of clients to carry on utilizing your product, i.e. they will keep on using the product just if it carries value. A simple technique for you to tell if the investor discovers “value” is by the total time they are allocating on assiduousness. Investors can just work on some deals at one point in time. So, there are probabilities are they are not going to capitalize.
In the case where the deal gets hot, a few investors have FOMO and will keep deals on the back burner. However, you do not require that sort of investor for different reasons. Venture capital excitement for a deal has a half-life of some days from your meeting. There are very low chances that they are running diligence and more chances that they are not interested, in case you haven’t heard from the investor.
3. Theory of Small Batches.
Majority of the business owners will block off some weeks for fundraising and arrange back-to-back meetings with investors. According to Ries, it is very risky because it provides you less chance to identify basic problems in the way you are positioning your story and make meaningful alterations.
You have already used your bullets, by the time you realize that there is a problem. As an alternative, it is recommended for you to segment your hit into small batches, beginning with the investors you fell would give the most positive feedback.
4. Validated Learning.
Ries suggests that startups run trials to test portions of their product in order to scientifically point out what’s working and what’s not. Provided that the comparatively lesser number of investors you will target, it is difficult to run experiments in the proper sense. That being said, it is significant for business owners to comprehend the numerous dials and knobs in their pitch, test dissimilar versions, and point out what’s working best. A learning mindset is very important.
5. Cohort Analysis.
In addition to catching problems initially, segmenting your pitch meetings into small batches/cohorts will assist you to examine and comprehend how alterations you make to your pitch really influence your success. It is significant to ascribe modifications you are making to the pitch to a unit of pitch meetings so you can exactly attribute the total effect. Just making modifications on the fly has too much room for mistake.