Even the best idea in the world can’t get off the ground without a sustainable source of finance behind it. For startups, securing funding for a product can be a daunting prospect — especially if the founders are coming from the security of salaried employment with an established company. If we’re starting a company that we hope will one day reach a billion dollar valuation or more, we’ll need a different kind of strategy from the beginning.
Fortunately, today there are numerous avenues open for startups to secure funding. We’ve put together some essential steps and suggestions to guarantee the investment that will turn your brilliant idea from lightbulb moment to fully-fledged product.
In an ideal world, every startup would be able to launch with a healthy amount of external capital investment behind it. However, the reality is that many people have to get things going by relying solely on their personal savings.
Nearly 80% of startups are initially funded by their operators’ personal finances. Do not be discouraged if this is the only avenue open to you at first.thanks to the accessibility of open source software, cloud tools and more affordable computer equipment, cost has really fallen.
Bootstrapping actually allows you to exercise complete control over your startup, without any outside interference from investors. However, this may also be a disadvantage, as outside investor influence can be an invaluable tool for inexperienced entrepreneurs, and can help guide and shape the startup in hugely beneficial ways.
There are also inherent risks involved in relying on personal finances for initial funding. Your capital and assets are at the mercy of the success of your startup — if the business fails, you could be left in dire financial straits. If you are that financially strong, bootstrapping is your answer otherwise go for some another option.
This concept is relatively new player in the fundraising arena, crowdfunding sites and companies have become hugely popular not only for securing investment, but also generating hype.Various Platforms have given startups a direct line to millions of potential investors, with campaigns able to go viral thanks to the ease of sharing them across social media
Crowdfunding sites allow startups to get creative with the type of returns offered to investors — some offer supporters varying levels of rewards and product perks depending on the amount of money put in. Rather than having to pursue a small number of specialised investors, crowdfunding platforms put startups’ products and campaigns within the reach of a more diverse pool of interested parties, the potential for success on these platforms is immense.
Angel Investment & Venture Capital
Despite the growth of crowdfunding programs, the most lucrative source of fundraising remains angel investment. Shows such as Shark Tank have brought the concept of this form of investment more into the public eye. Between angel investors and venture capital firms, it is the former that startups are more likely to encounter in the early stages of fundraising.
Angel investors still offer substantial investment and have become a staple of startups’ business plans because they also offer mentorship and management skills for the fledgeling business. Traditionally, angel investors are entrepreneurs themselves, and their investment in a startup is for control of a certain percentage of the business tooIt is here that your business plan will be an essential tool. Many will take an interest because they believe in your product, but ultimately they want to see the potential for substantial returns on their investment. A solid, tenable business plan will be an invaluable tool in demonstrating this to them.
It’s about demonstrating your product to the potential investors.It can be in a meeting or conference or any other potential event. Start strong. Attend a few small pitching events to get your weight up and get used to it, practice your pitch VS people you respect on Skype, etc.
Generally Investors are looking for three things: Team, Traction, and The Product.
Team: Your team should be super strong and smart enough to sell the product literally to anyone.
Product: You should design a unique widget that could be in every supermarket in the world.
Traction: Basically you should be getting over thousands of unique visitors a month on your sites.
Actually it takes generally six months to raise money in an AMAZING business, infinity on a mediocre business.
Don’t look for investment until you have one of “the three” absolutely popping’ off. If I had to choose one of the three, it would always be traction, followed very closely by a unique, defensible product (particularly if it’s a tech product that would be hard to build, or has a community, which also gives you a position of strength).
Also, your pitch will suck the first time you try, so don’t burn it on the best investors
It’s also important to Have the same mentality with investors: Don’t work with people who NEED to make the money back they give you.
Investors are like record labels: They invest in 10 companies (bands) and only expect one or two to be massive, recouping the losses of the others and making a huge profit on the side.
THUS if you take money from institutional investors, they’re not gonna make you sell your house to give you their money back.Established investors know “the game”.
Likewise, if you borrow from a family member or friend, that is a TONNE of money to them, and they will hate you for losing it. Institutional investors? The game is the game.Your blood is their gold, and they expect you to work until near-death to make them they money, so they have to accept a few failures along the way.
Raising funds for your startup is like a second full-time job on top of developing your startup. It usually is stressful, nerve-wracking, and often confusing. How do you know what investors want to hear? How do you know what to include in your pitch and what to lead out? And, most importantly, how do you know what will catch investors’ attentions?