“Convince yourself that your startup is worth investing in, and then when you explain this to investors they’ll believe you.” Paul Graham
If you are not backed by an elite accelerator, raising money for your company can be difficult. In fact, at present there is tremendous competition in the market and that makes it more arduous for entrepreneurs to get their start-ups off the ground.
According to a recent research conducted by Shikhar Ghosh, a senior lecturer at Harvard Business School, venture-backed start-ups fail in strikingly high numbers. About three-quarters of venture-backed firms in the U.S. don’t return investors’ capital.
You don’t want to be one of them, which is why it is essential to know the right methods of acquiring funding. Without adequate funding, a business cannot launch and sustain itself. Hence, fundraising is the key to the success of your startup. When done correctly, it can lead to lucrative partnerships with angel investors and venture capitalists.
Here are a few tips that can greatly help you with the process of fundraising.
- Go Step-By-Step
You want to target the right mode of investment for your company. For this, it is essential to pursue the right method of fund raising.
Accepting cash in the form of VC (venture capital) funding may not be the right choice for every newbie entrepreneur. According to Kauffman Foundation, only 16% of the total fastest-growing private companies in the United States, identified in the annual Inc 500 list between 1997 and 2007 had taken VC money. However, several of today’s recognizable tech giants have partnered with VCs.
Crowd funding is also a brilliant fund raising option. But, it is not the best option for long-term funding. You can consider opting for angel investing too. Regardless of the fund raising method you choose, make sure to evaluate your specific circumstances and decide accordingly.
After the evaluation, ensure to approach funding in phases. Here’s what you should know about a startup’s funding rounds:
- Seeking out seed money: This phase involves receiving a small amount of money from the investor in order to give the start up the momentum it needs to produce the initial product. A portion of this investment should also be directed towards marketing efforts in order to create buzz about the product.
- Series A: This phase involves the entrepreneur working out the nuts and bolts of moving the startup’s product into the marketplace. The funding is at a larger scale than the seed round (usually between $3-7 M) and is offered in exchange for a portion of the startup by the investors. Expenses at this phase should include operations, branding, growth, optimization, marketing, staffing, promoting the product, and hiring social media/community managers to attract users.
- Series B: By the time the start-up has reached series B, it should have a product and a business model, and will need enough capital to bring the product to a broader market. The funding in this phase witnesses a significant incline, from $7M to about $50M. Moreover, in this phase, start-ups should continue balancing business development duties with user acquisition.
- Series C: In series C funding, the start-up should move the work it’s been doing in series B towards international markets and/or focus on diversifying its product for multiple platforms.
- Brilliant Pitch Is Essential
When it comes to preparing a fund raising pitch, there is no one-size-fits-all. However, by keeping certain essential aspects in mind, you will have an edge over others.
Here are a few tips that can help you with your pitch:
- Know your strengths and play to them.
- When it comes to pitches, telling a great story is important. In fact, according to Oren Jacob, co-founder of ToyTalk, storytelling is a crucial part of making a pitch memorable and resonant.
- Your pitch should include the objective and the goals of your company, the problem you intend to solve through your service/product, the kind of technology involved, and the reasons your potential customers will like your product/service.
- Focus on Networking
Networking is one of the most prominent aspects of fund raising. It plays a critical role in business development. Being in the nascent stage, speaking with investors and developing relationships can prove beneficial. Here’s what you should do for networking and finding investors for your start up:
- Get your company on AngelList.
- Email potential investors on a regular basis in order keep track of their responses.
- Reach out to current investors to see if they can help you make new connections.
Embrace the power of networking. However, don’t make this your top priority. In the initial stages, customer demand and data should be your primary guide.
Financial Management
More often than not, capital financing is considered as the Holy Grail for a start-up. However, there’s more to start-up finance than fund raising. Also, good fund raising starts with good financial management.
Keep the following in mind for maintaining the financial health of your start-up:
- Ensure steady finances and ready small business loan liquidity available at all times for your startup.
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- Have your company’s financial information at your fingertips. This will enable you to make informed decisions in terms of budgeting, expenses, hiring, and investments.
- Have a solid understanding of the cash flow of your business.
- Build realistic growth projections for your company as that will help you with budgeting as well as in attracting investments for your company. Also, for successful investments you need to understand its various aspects beforehand. Regardless of what you choose to invest in – a mutual fund, a rental property, or gold, you should be clear about how and which sector you want to invest in to get the best return. For instance, if you’re planning to exchange cash for gold, make sure that you are familiar with market prices, gold futures and trends.
- Use financial management software to manage your start-up’s finances effectively.
- Consider having a financial mentor by your side as he/she can help you navigate the seemingly complicated financial landscape and stay on top.
Conclusion
Raising funds for a start-up can never be easy, which is why several first-time entrepreneurs fret over fund raising. But remember, acquiring funding for your start-ups is a means and not an end in itself. Don’t let this process consume you. At the end of the day, your business is all about your customers and not your investors. Also, financial management plays an equally important role in a business, especially in the risk-driven world of entrepreneurship. Failure to manage it can lead to financial disasters. The above-mentioned tips can help you handle your finances effectively and ensure that your fund raising experience is a smooth-sailing one.