At square one, every startup has a small budget and limited resources to operate. But no wonder that to launch and run a business you need a large sum of money. So what to do in this case? The most common and best solution is to find a person or an organization willing to invest money in your startup. Here are three main steps every business owner should take when looking for funding.
Step 1. Choose fundraising strategy
The right strategy is a key to success. While there are several different solutions for small business owners, it is important to know about each and find the right one in accordance with business needs.
The list of the most popular fundraising options include:
– Angel investor
– Venture capitalist (VC)
– Business incubator
Consider each of them in detail.
Crowdfunding can be a really good method at the very beginning of the business lifecycle. The business owner gets the small amounts of money from a large number of people who can be both business owners or ordinary people. This method has a big list of pros. The first one is the accessibility of this method—all you need is to create a profile in one of the crowdfunding platforms and pitch your idea on it. Secondly, you have no need to share an equity with investors. Depending on the platform you use, you may have to pay them a reward, fixed or set by you. Also, it’s a good way to increase your business visibility.
But since the accessibility and popularity of this method, your project can get lost in a large list of other projects. There are also chances of your idea being stolen. Patents and trademarks will help, but they cannot protect it completely.
The popularity of such a method resulted in the appearance of dozens of crowdfunding platforms. It simplifies the way of choosing the right one. Among the well-known platforms, there are Indiegogo, Kickstarter and GoFundMe offering different ways of rewarding your investors.
GoFundMe requires no rewards from your side. Typically, donation-based platforms like GoFundMe raise money for charity and nonprofit organizations.
Kickstarter tends to be the most well-known crowdfunding platform. In total, about $3.7 billion was pledged to projects. The number of successfully funded projects reached 145,000. On this site, you set a reward to the investors and must pay it in case you’ve reached the financial goal.
Indiegogo’s policy is opposite. Here you can be funded only after you’ve paid a compulsory 9 percent fee. And no matter if you’ve reached the goal or not.
In a nutshell, it is an individual who believes in your project and puts their own finance into it. Typically, they require an equity stake in the company. The amount of money given by angel investors can vary significantly, but in most cases, they invest not so much. However, they are more likely to invest in early-stage companies.
There are also several platforms to find such investors, among the best ones are Gust and Angellist. Besides, you can find angel investors offline. For this purpose, you should attend events concerning related industry.
VC firms put together money from various corporations, business owners private funds and so forth. Individuals managing all gained money are called venture capitalists. They aim to find a company with a big potential, invest a large amount of money into it and then get a higher return. They usually require a big chunk of equity and a seat on board of directors. In case your company succeeds, after several years, venture capitalist sell their share to you or other company.
If you have an early-stage business, you may struggle to get VC’s attention. In most cases, investors contact business owners by themselves. But only if the business seems to grow.
Initial Coin Offering (ICO)
Being a good substitute for the traditional percentage, ICO now is a hot topic in the business community. The concept is that you create a digital token or coins and sell it to your investors. The system seems pretty easy, but in practice, there are several tasks need to be done. First of all, you need to find a tech-savvy developer to create an ICO. In order to facilitate the process, you can create tokens based on Bitcoin, Ethereum or any other already existing cryptocurrency.
These companies are geared toward helping recently established startups grow and get funded. Initially, they provide their proteges with a seed capital. After that, they organize workshops to teach newbies how to run a business. After it, these companies can present you to the angel investor or venture capitalist.
YCombinator is the most well-known business incubator investing in companies around the world. Bet you know such companies like Twitch, Airbnb, Quora and Reddit. All of them were sponsored by YC.
Step 2. Prepare for a meeting with investors
Imagine you’ve already contacted with an investor. And finally, you’ve arranged for a meeting. But don’t think that’s all. To get funding for your project, you need to persuade your potential sponsors that it is worth investing in. First of all, you need to take care of the following things:
It is a short and convincing presentation that contains all necessary information about the project. Don’t forget to protect the idea from being stolen. Just add “Confidential and Proprietary. Copyright (c) by…” label to the slides.
It is especially important for tech startups. In case you develop a website or an app, you should create a clickable prototype, that will look like your future product. Also, you can develop MVP. It’s an application which contains only necessary features of your future app.
Step 3. Think through details
So, you’ve completed all previously described steps. Congrats! Now it’s high time to rely upon your brilliant idea and outstanding pitch deck. But wait, there are also a couple of things to consider. Think through them now and you’ll avoid mistakes in future. They may seem obvious, but in a lot of cases, startuppers fail because of neglecting them.
It is one of the most obvious and common reasons for fails. Not surprisingly, that no one would invest in the clone of already existing business. Search whether there are no similar companies. Remember that only great ideas succeed.
Precisely define your market and check your rivals. Don’t be afraid of competition and covering a large niche.
Be ready for changes. Dozens of successful companies look very different from what they were at the very beginning. If you’ve launched the startup and came up with another great idea, discuss it with your stakeholders and customers. And in case they like the new idea, don’t hesitate to go for it and change your business cardinally.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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