Startup needs funding? Here’s a step-to-step guide
Brian Scudamore, owner of multiple businesses and a renown Forbes contributor very aptly encapsulates entrepreneurship in this one statement:
“Entrepreneurship is nothing if not a crash-course in humility.”
It’s not that difficult to come up with a business idea and develop it into a B-plan. There are multiple B-plans with immense potential out there. The real challenge lies in finding funds for your startup. Even if you start off your business with the help of your savings and financial aid from family and friends, it is not possible to have burgeoning growth until you have proper funding from external sources like venture capitalists, angel investors, and financial institutions. These days, raising capital for a business is tougher than ever. In fact, one of the most common reasons why startups fail is because they have limited funds as working capital to realise their business plans or expand their business.
Do you own a startup? Are you clueless as to how to raise funds for it? Then read this step-by-step guide to successfully fund your startup.
Evaluate your financial standing
Before you plan on approaching external sources for funding your business, it is important to perform a self-analysis on your current financial standing. Assess your total savings.How much of it are you willing to invest in your startup?Invest only as much as you can afford to lose. This also goes for other non-capital resources like time and effort.
While you take note of your savings, make sure you have no debts to clear. You don’t want overriding home loans and car loans when you are starting your new business. So check for your financial health first and then proceed with your plan to attract other investors for your business.
Estimate the capital you need
The next step is to figure out how much capital you need in total and in what form. Assess all your funding options and then do a cost-benefit analysis. Find out how much each option will cost you. By options, we mean either debt in the form of convertible notes or equity in the form of angel investors and venture capitalists.
A common mistake that a lot of entrepreneurs make is raising a large amount of money all at once. The problem with this approach is that with more money comes the need to show due diligence to your investors. In a way, you are compromising on your freedom when you raise huge amounts from investors. Another problem with this is that to accommodate a large sum of money, investors need to adjust your valuation accordingly. And having an artificially higher evaluation can put a lot of strain on your startup.
Bootstrap as long as you can
Bootstrapping is working on your business as a side-hustle, funding it yourself as much as possible. It might require you to cut costs as much as possible by working with limited resources. The idea of bootstrapping might seem obvious, but we can’t stress this point enough. Although the focus of this article is to help you raise funds through external sources, you cannot deny the benefits of being able to fund your own business. Bootstrapping means fewer obligations, no debt and at the end of the day, you are not answerable to anybody but yourself. This is extremely beneficial in the initial phases of setting up your startup. You can use these funds to get a stable customer base for your service or product. This, in turn, would make you a good candidate to attract funds from venture capitalists and angel investors in the future. So, it is best to bootstrap your business for as long as you can.
Strategically target venture capitalists
Do your research before you target venture capitalists. Focus your efforts on VCs who support companies from your industry. It is pointless to chase VCs whose expertise and industry focus do not match yours. Additionally, different VCs tend to focus on funding companies at different stages of development, so spend time in meeting VCs who would be interested in your pitch.
Associating yourself with the right VC will give you validation in the market and raise your overall company’s profile. It is, therefore, important to thoughtfully target venture capitalists.
Perfect your pitch
This is the ultimate test of getting more funding for your business so make sure you put your best foot forward while pitching for your startup. Here are a few things you should include in your pitch:
● The problem your company is addressing and the solution it is offering to its customers.
● Emphasis on the market opportunity
● The credentials of your founding team
● Speak about your unique value proposition
● Speak about your milestones and how you plan to achieve them
● Lastly, talk about the funds your startup needs.
Your work does not end here; you have to be persistent with your efforts to attract funds for your business.
We hope this step-by-step guide on how to raise funds for your business has helped you. Let us know your thoughts in the comments section below
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