How to get your startup funded
That is one of the big issues that plague a lot of entrepreneurs at one stage of their business venture. In case you’re wondering if it is such a big deal, of course it is. Funds do make the entrepreneur journey a lot easier. It can very well determine your success or failure. About 8 out of 10 entrepreneurs crash within the first 16–18 months of starting their venture, which makes up for 80% of all start-ups that fail, mainly due to cash paucity.
Fundraising has the power to boost your marketing campaign, or bring your product to life, or allow you to scale your business at a very fast rate (if it is scalable), it can even get you top tier talent. It will not guarantee you success, but it would definitely improve your chances greatly and make your life a lot easier. If only there was an easy secret formula that would solve all our fundraising problems.
Well, it does not work like that. If funds did come easy to anyone, who would even be thinking of employment, most of us would definitely be out there trying to bring our ideas to life.
With the turn of the century and the spread of the start-up mania that has driven millions to start their own business, investors are getting very cautious with ‘whom’ they give their money to. The days when stories of investors easily investing in just an idea are slowly dying off, now with so much competition from various start-ups, investors are setting very high expectations for the business ideas they invest in.
So, how do you improve your chances of getting funded and where do you get the funds you need to run your business?
How to improve your chances of fundraising?
It’s easier to convince someone to part their money if you have proven track record than using facts of a fictional business plan. While there maybe organisations that will consider your business plan when deciding whether to invest in you, most times you will need to prove that you’re capable of succeeding in your niche. They are number of ways to do this.
Build a working prototype. You can describe what your business idea is all about and hope that they will agree with you and give you money to build it, or you can build a working prototype of your business idea and make them believe that it will actually work and also in turn show them that you are invested in your idea and are hardworking enough to make this succeed and it is not just some pipe dream to you.
Most investors will invest in a working prototype. Chief evangelist and angel investor, Guy Kawasaki puts it this way:
“If a picture is worth a thousand words then a prototype is worth ten thousands slides.”
Get traction. If you’re unfamiliar with the term traction, it simply refers ‘to the progress of a start-up company and the momentum it gains as the business grows.’ There is no one way to measure traction, however, companies usually rely on customer response and revenue as indicators of their success.
Getting traction will prove to your potential investors that your business has a high chance of success. Traction will make you stand out from the huge crowd of starting start-ups. Nowadays, an investor would rather see the profit before they invest
Show them the quality of your team. Who would you rather give your money to help you out with investment options, a high school student with no history of dealing with investment, a chemistry university graduate or an investment banker with a proven track record of success? The most logical answer is the investment banker.
It is the same with investors; they probably hear business ideas every week, but what will convince them to invest in that idea is the team behind that idea. Investors will pay close attention if you are a geek, nerd, expert, PhD, and have piles of research publications in your name. If you have a great qualified team with you, show them to your investors, bring out their past success and prove that their cheque is in the right hands. Why is your team the absolute best to pull off this project? Find that answer, define it and make sure it comes across in your meetings.
Scott Dunn, founder of ‘The unicorn app’, says:
“When it comes to early-stage start-ups, an idea gets you the meeting, but the team gets you the check,”
The main idea when fundraising is to stand out from the crowd and do everything you can to prove that your business idea will be a success. Think of it this way, If 200 people have a business idea, 25 will build a prototype, then only 10 may have great team behind it and then only 3may have great traction. And if you have built a start-up in past, and have made your investors rich, then your chances of getting funding at the idea level are bright. I am guessing no such person is reading this article.
So do everything you can to stand out.
Which brings us to the other question you might be asking yourself…
Where and how can I find people to fund my idea?
They are quite a number of methods you can use to find people who can fund your business if you are resourceful. Some of these ways include:
Funding it yourself. This is by far the easiest method of getting money for your business idea. Get money from your savings and put it in your business idea to get you started if you can. If you cannot convince yourself to part with money for your own idea then maybe it is an idea not worth pursuing. And don’t even expect don’t expect investors to put in their money either. Because they won’t.
Investors are smart people who know what they are doing. They are interested in ensuring whether you know what you’re doing, which is why they tend to prefer entrepreneurs who reflect some confidence with cash and are not content with sweat equity.
Close friends and Family. The people that care about you and know you can be more willing to part with their money on your behalf. You can reach out to everyone in your friends’ circle, explain your idea, convince them that you won’t lose their money and make them your investors. It could be in form of debt or they can be partners in your business by owning some of your equity, that is solely up to you. Borrowing from friends and family is an interesting alternative to funding a startup and come with some commendable benefits such as low- or no-interest payments, as well as avoiding the hassles that you may have to face in other types of loans.
Small business loans. Apart from friends and family, you can get a small loan from organisations that do offer such loans. Most cities and towns do have banks, and financial institutions that are willing to give a business a certain amount of money to get their business running. This can be a great way to get your funding all at once. And unlike other investors, It will even give you more freedom to make your day to day operations of the business as most organisations that give out these loans are not interested in that, as long as you meet the conditions for getting the loan.
Crowdfunding. Crowdfunding is based on raising small amounts of money from a large number of people. It provides an opportunity to go directly to your customers to raise awareness and money for your business. In addition, sometimes entrepreneurs use crowdfunding first, and once they have proven the market demand — go on to raise money through venture capital firms (at much better terms) for the next phase of their business.
It is done mostly through crowdfunding websites. You basically start a campaign that will convince people to fund your idea. It’s important to say that crowdfunding takes work! You will have to tell a really great story, and make sure that you have a plan, outreach strategy and a great community around you to reach your funding goal and bring your idea to fruition. But it is better than just sitting and giving up on your dream.
Angel investors. An angel investor, often called an angel, is an individual with private wealth who usually is passionate about funding causes that solve a big problem in the world (while also providing a return on their investment). An angel will usually fund a start-up in exchange for a percentage of equity in the business. Aspiring business owners can take inspiration for the fact that some of the most prominent companies such as Yahoo and Google were helped in their early stages with angel investors. They are many ways to reach such investors, in persona or sites that will allow you to contact them. Sites like LinkedIn.
Other very notable ways of getting include venture capitalists, credit cards, selling your assets, home equity loans etc.
Fundraising is tough and can be intimidating, but it is not impossible. Enhance your odds by taking as many meetings as possible — this saves you from placing all of your eggs in one basket, so to speak. The more you do it the better you become at it.
I hope this article has shed some light on how to improve your chances and where you can go to raise funds for your business idea.
What do you think? What ideas do you have to fundraise for your company? I’d like to hear from you now. Leave a comment and share your thoughts in the section below.