How to Raise Startup Capital as a Student
Ask any great startup mentor, Reid Hoffman, David Rose, Eric Reis, or Peter Thiel, etc. They’ll tell you the logical first step in raising capital for a startup venture comes from either you or a “family, friends, and fools” round.
This round consists of asking relatives and friends for capital to grow your startup.
Many of the great startup books repeat this practice over and over again. It can be heard during investor panels and fireside chats. It’s a mainstream idea that deters student founders from raising the initial funds to build their startup.
In the early days of Boost Linguistics, we played with this idea.
I looked at all of my friends and family in an excel contact sheet, trying to devising ways to approach them about funding.
One look at the barely populated sheet and it was blatant - I can’t raise a friends and family round.
For starters, I have a small family and all my friends are college students. Second, no one in relation to me has an extra $25,000 laying around to test the validity of a market without the promise of a return.
As for fools, I know plenty of fools, but sadly, none with an extra million in the bank.
Raising the Initial Funding for a Student Startup
There seems to be a gap in startup funding that student founders struggle with — starting capital. The second step in the startup funding process is typically a seed or angel round. These rounds range from $250k-$1.5m and rely on 2 major factors to get approved; the team’s experience and expertise, or the early market traction (revenue or users).
In order to prep Boost Linguistics to take on a $250k+ investment, we needed the early capital to get traction. However, as students, we didn’t have the means to raise a family round.
So what did we do?
In 2015, we were advised to check out events hosted by the Close School of Entrepreneurship.
The upcoming event was a startup idea competition that awarded $1,000 to the winner and smaller cash prizes to the runner-up. In order to win, we needed to prove the validity of our idea to a panel of judges during a 5-minute presentation.
Months of work earned us 1st place, but sadly, $1,000 wasn’t enough to take Boost full time. With the prize money, we were able to develop an MVP which helped test out the market fit in a live scenario, aka, exactly what we needed to prep for the next stage.
We searched for larger competitions. With this, we officially opened a “competition round”. We set out creating business plans and mastering our pitch for the sole purpose of raising enough non-dilutive capital to turn our idea into a product and then head into the open market.
Our plan worked out, we were invited to many other competitions, winning $5,000 from one hosted by Richard Schulze. By the end of our 8-month competition round, we raised $52,000 in cash, acquired a year of free office space, free accounting aid, and free legal aid. All of it, earned through hard work and dedication with $0 spent out of pocket.
Me with Daymond John at a startup competition.
Student startup competitions
If you’re already interested in competitions, great! Now, let’s work to understand competitions and align your startup for a successful round.
Spotting Competitions
Competitions take many forms, some are labeled as all day conferences with a pitch competition mixed in, others are entirely dedicated to startup pitches. Below are the titles you can expect to see, and should be looking for.
“Innovation showcase”
“Startup competition”
“Entrepreneurial showcase”
“Shark-tank style pitch competition”
“Student founder competition”
“60-second pitch event”
“University entrepreneurial showcase”
“Startup festival”
Mix and match these terms and you’ll be able to find almost every competition.
The competitions vary in levels of complexity. Some will require a mere 60-second pitch, others have rounds in which they vet the startups to select the top contenders. During the rounds of vetting, you may be asked to submit a variety of different materials.
The larger competitions are very similar to the glamour of NBC’s shark tank. In the final round, you’ll be placed on stage to present in front of a panel of judges and the audience. If all goes well and you hone your pitch, you’ll walk away with a giant check.
How to Find Competitions
Finding competitions is fairly simple. With the terms listed above, you can start with Google and make your way from there. Below are a few more in-depth methods:
Your or a local University
Start with a local entrepreneurial college within a university. Faculty will know other schools that are hosting competitions. At the Close School, a weekly email is circulated that has tons of opportunities for startups.
If your University only has a business college, check for an entrepreneurship or an innovation department. The faculty there are most likely in tune with resources and outlets that can aid your search.
Check the sources listed below if your college does not have any of the departments listed.
Online competition sites
F6S — F6S is an online database of startup resources including events, competitions, accelerators, and more. You can easily create a profile for your company and use it to apply for startup competitions domestic and internationally.
Startup Compete — this is a platform that Universities use to host large competitions. They provide access to the list of all active competitions on their site. (Many of the competitions I’ve participated in used this platform)
Global Entrepreneurship Network — this platform is very similar to startup compete. It has a database which includes competitions exclusive to University students and recent grads.
I encourage you to check all of them every time you want to enter competitions.
How to get Invited
Applying to competitions takes time and effort, you will need to spend hours writing and revising in order to prepare all of the required material. Below is a list of what you can expect to create for an application. All of the material listed below links to helpful examples.
Material needed:
Video of the founder(s) and why you are the team to operate this startup.
Full ten-page business plan.
30-second pitch video.
Full video of the company vision.
Links to the founder(s) social media accounts. Make sure all are up to date.
Increasing your Chances
At Boost, we applied to multiple competitions at once. With a ten-page business plan as our base material, we were able to create video scripts, write executive summaries, and create slides with ease. Having the base information helped us to save hours of work.
10 tips to make a solid, living, business plan.
1. Write, revise, repeat. The more OFTEN you revise, the better.
2. Apply professional design. By applying design, you are instantly above anyone who did not.
3. Invite 3rd party editors who have business plan or startup experience. Try to ask faculty that have been judges in the past.
4. Use Logos and images. Images are typically mockup designs or logos of possible clients or competitors.
5. Be sure to source any stats that you are quoting. Add a “*” to the quote and place the citation in small print on the bottom of the page.
6. Don’t add dates to milestones or timelines. Use “M1”(month 1) or “Y1”(year 1) to display time in the future.
7. Do NOT overestimate your financials. Your first year should not be $10million in revenue. Try to be modest, a mild loss in Y1 shows a believable analysis.
8. Use graphs to your favor. Graphs display data efficiently if the data is displayed correctly.
9. Use Grammarly. Do not trust the grammar of your plan to MSword.
10. Write for the rubric. Make sure you covered everything listed in the competition rubric.
How to Win
*Remember this. Humans are judging these competitions. You can be a 10/10 on the rubric in practice, but in the end, it’s up to the judges.
To increase the chances that they’ll pick you, here are three things you’ll need to work on.
Public speaking — be able to present with clarity and passion.
PowerPoint slide design — design slides that compliment your ideas and are attractive to the eye. Use photos of people and less text.
Business writing — learn to be as clear and concise as possible in your writing.
No matter the style of competition, these are the three things I have seen among winning founders.
Example of a Competition Process
The Boost team made it into a startup competition at Baylor University in Texas with a prize of $50,000. Being a large prize with national interests, they broke it up into three phases.
How we found it:
A member of the Boost team found the competition listed in one of the startup opportunity emails circulated around Drexel University.
Phase 1:
General application posted online.
Visit a landing page for the competition and hit apply. From there all it took was some basic business information, website, contact info, and the founder names.
We we’re 1 of over 200 startups to enter.
Phase 2:
In phase 2 they narrowed it down to 50 companies. The accepted companies received a congratulations email and were asked to complete a new round of required material. We were required to submit a full ten-page business plan, tax information, and verify our University.
Phase 3:
Phase 3 removed 40 companies from the running. The final 10 were sent to a large conference at Baylor University to compete for 1st, 2nd, and 3rd place prizes. During the competition, companies had an additional opportunity to win capital through innovation showcases and mini pitch events.
Alternative ways to raise capital as a student
There are other ways to raise capital in the early days. Most of the methods are completely separate from working on your startup, but the funding could be enough. Take the Airbnb story for example. With their talent in design and willingness to hustle they managed to sell $31k worth of Obama O’s, a cereal of their own creation, thus funding Airbnb. Here is their full story told by Brian Chesky.
Another method to receive funding is startup accelerators. If your startup has traction without the early funding you may be in the running for an accelerator. These are designed to fund a company for a small percentage of equity (less than %10). They provide mentorship and the initial capital to take the founders full time. Among the most popular are 500 Startups, TechStars, and Y Combinator.
The process for finding and applying to accelerators is fairly similar to competitions, but they focus much more on founder experience and traction to date. The teams you’re up against in that realm most likely have revenue or are solving a big issue.
Wrap up
I’ve heard stories of people funding themselves through college parties, selling children’s books, and other unique stories. The task of finding a method to raise the initial funding to build your startup is entirely your own.
The advice I can offer is, be aware of the resources around you and utilize them. They may not be directly in your sight, or easy to access, but believe me they do exist.
