How To Fund Your Startup | Infographic
It is a reality: 90% of startups will fail. Among these failures there are mainly four main reasons. The main one is a problem in the market need, meaning that many out there did not make a proper market research to check the real needs of our society for their new product. Another one is that s startup can easily and quickly run out of cash and not survive. One that many people don’t imaging is that if you do not have the right team, it will be a complete disaster. Last but not least, if your idea is not right, you will get outcompeted and by the end not succeed.
The Chicken-Egg Problem
Whilst many out there think that money is the big deal, it appears that most of the time four elements are actually bended together and need to be in harmony altogether: your idea, your team, your niche market, and your fundings. Let’s project ourselves into some potential situations to make you understand.
If your team is fantastic, your fundings huge, but your market difficult to integrate and your idea not so good, it will be difficult to get your startup up and running. In the meantime, even with a good idea and the right team, if the market is extremely competitive it might be a nightmare to make things happen. Every element needs to be well-balanced to get the right startup on the way. Basically, these four core elements need to happen together in order to make your startup balanced and efficient.
That said, fundings still remain an important part of the process and it is sometimes hard for a startup to understand how to get proper funds and at which stage, without loosing control. The infographic below this article will summary what are the main options usually available for a startup.
Discovery of the Product
The Pre-Seed Capital is perhaps one of the most difficult step for a startup. The goal is basically to reach the stage of the MVP (Minimum Viable Product) where you have a working prototype that you show around and convince more and more people for your community. Hence, money is obviously required to build it. There are many different situations that we have seen in the past though. Many people would save enough capital and bootstrap their own project, which means they will use their own money for it. If this is not enough or you do not have any savings, you can still ask your Friends and Family as they might be a great source of income especially at the beginning and probably the easiest to convince for your project. Many also forget the possibility of applying some grants to organisations or governments to get your project started.
These were the easiest options for a quick start. The next ones, at least for the pre-seed capital stage, will involve a tricky part that few truly understand: equity. When you create your company, you are the sole owner and own all shares, e.g. the whole capital and value of the company. A way of getting funded is by getting cash in exchange of giving shares away. Then, you are not anymore the main shareholder and your partners will have the right to also make some decisions. It can be pretty complicated so before you jump into it, better make your own research and ask around as there is no way back. Where you can actually face these options are when you take a co-founder on board, become part of an accelerator and/or incubator program, or make deals with angel investors.
Market Validation and Scaling Up the Business
There are usually at least three more rounds of investment for any startup: the Seed Capital, Series A, and Series B & more. The Seed Capital is when it usually jumps to the next level and could be referred as well to Market Validation. Nowadays, the trend is for crowdfunding, Indiegogo and Kickstarter being the most famous ones. It allows you to test your product on the market and get enough funding to jump into mass production as tooling is probably the most expensive part of the product development, alongside certifications for some cases. A new option involves equity and it is called equity crowdfunding. It is basically the same than crowdfunding but in exchange of shares, you can get fundings according to how much people believe in your product. The two last options are bank loans (pretty common for people but can be very dangerous) and VCs (Venture Capital Firms). VCs can be tricky sometimes as they might require a huge ROI (Return on Investment) on a short term basis and might also be hard to negotiate with.
All in all, many options are available at different stages of your startup, some are just easier than others. Creating your startup is a long journey where many obstacles will jump on the way but with a great team, a great idea, a proper market niche, and some fundings, nothing can go wrong.
The infographic below has been designed to help you better visualise this complicated process.
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