In my short career, I’m privileged enough to get in contact with a number of people in the local entrepreneurial ecosystem. With most of them being aspiring or already in the game entrepreneurs, a common question that arises is -no surprise here- how to raise money.

That’s more than fine, and it’s actually part of our job at the Openfund. What is not equally good or acceptable however, is the typical way that an entrepreneur approaches this process, or at least that’s the typical way that many entrepreneurs I get to contact with think and feel. In this context, I’d like to take my fair share and attempt to shed some light on what I consider misconceived or not.

Here’s the approach I usually get to observe. An entrepreneur comes up with an idea, puts a lot of hard work behind it and she makes some good progress. Now she has a business plan in place (though this is lately becoming rare to observe), some rough prototype or a working product, or maybe a half baked business as well. The maturity is not the point here, what I want to focus on is the very moment that she decides to go after fundraising. And here’s how she perceives it.

“I value my idea/product/company at X euro, I’m willing to give Y% if you want to invest.” That may sound fine to you, but -well, to my short experience at least-, it is plain wrong. And this is not bad due to being stubborn, or pre-defining a price that should be defined by both participants of the transaction. It is by definition a wrong approach to take on this problem, and here is why.

You are not into this game to get a valuation of your company, or take some money and run. You play to do more, faster. And the basic question that you need to address is what you want to do, when you want to get it done and why it makes sense for both you and your potential partner to enter this game and do things according to your plan.

Remember, partnering in a company implies that each partner’s personal interest now falls behind the company’s interests; for one to succeed, the company needs to succeed in the first place and that has implications in both sides of the negotiation table. With this perspective in mind and solely based on the company’s interests, valuations and percentages cannot but naturally occur. But, instead of the previous ‘popular’ approach, here’s my humble advice on the questions that you need to address and how to build your story when you go after fundraising:

“Until now we’ve done this and that, this shows that there’s some traction and early market validation to the product and also, more importantly, as a team we are the best fit to make it happen. This is the market that we target at and it makes sense to go after it because it’s huge and growing and underserved so far. To serve this market, these are the steps that we need to pursue within the next X months so that to reach targets A & B etc, and to get there we estimate that we need to spend Y amount of money. So we want to raise that much for a Z percentage of the company, keeping a sufficient stake for the investors in the subsequent rounds that we need to raise to bring the company to its potential and finally get to an ipo or acquisition.”

To me, this approach draws a completely different picture, while bringing the right mentality on the table. If you used to feel uncomfortable with its implications, fear you not. Founders are the single irreplaceable asset of a start-up company; at the end of the day them becoming unmotivated is the worst case scenario for every potential investor.

I hope you can relate to the above differences quite soon and you will be more efficient in your fundraising efforts by capitalizing on some of the above; in any case I’m keen to read your experiences and comments.