Introduction
Getting people to give you money for your startup is an important part of the entrepreneurial journey. The right investors can help you grow your venture, or they can derail you entirely; however, getting the right people to invest in your idea is often easier said than done. This article outlines seven key points to guide you through the startup funding process so you can make decisions about your process and investment that will best position your startup for ongoing success.
Understand Your Funding Needs
Decide how much funding you need and why it sounds obvious, but before you even talk to potential investors, you need to know what to ask for. Divide it up into specific categories: dollars for product development, dollars for marketing, dollars for operations, dollars for personnel, and so on. Being able to articulate a rich and detailed financial plan for your ideas will not only serve as your roadmap for your financing request but also demonstrate to potential investors that you have a strategic plan for using the capital.
Know Your Investors
Not all investors are equal. Research them to understand what they like to invest in, their past investments, and their areas of expertise. Find investors who have the right experience for your company, are sector specialists, and can also provide not just money but intangible investments, such as industry knowledge and connections. Finding the right investors will greatly increase your chances of success.
Prepare a Solid Business Plan
If you’re looking for startup funding, you’ll need a business plan. In addition to crafting a vision, market opportunity, business model, competitive landscape, and financial projections, investors also want to see a thoughtful, realistic plan for how they’ll grow and make money.
Demonstrate Traction
Investors will back you if you have some level of traction, such as a growing number of customers or revenues. Other forms of traction include building strategic partnerships or hitting certain product milestones. Traction shows the market that your business model is viable and that your product or service is in demand.
Consider the Terms
Make sure you know what you’re getting into when the money does come. Read the fine print of any investment agreement, including the amount of equity you’re selling, the valuation of your company, control rights, liquidation preference, and so on. It’s a tricky balance to bring in enough money to grow without sacrificing too much control over your company.
Build a Strong Team
Investors bet on people as much as on ideas. So, if your startup’s team is strong and experienced, make sure you emphasize it in your pitch. Explain how team members’ experience and competence bring expertise and experience to your startup. You should also demonstrate that the team’s individual skills complement each other to achieve your startup’s goals.
Prepare for Due Diligence
When you start to generate serious interest from investors, you’ll go through a process called due diligence, where they verify every aspect of your business down to your financial statements, meeting minutes, marketing research, etc. Again, keep your records current and accessible. Be prepared and upfront about everything, and the due diligence process will go much more smoothly, which will build investor confidence.
Conclusion
Financing your start-up is key to implementing your entrepreneurial vision. In order to make this a reality, you have to know what you need to fund, know your investor, have a proper business plan, show traction, think about terms, build your team, and prepare for due diligence. All of these steps are important to evaluate your financing needs, choose your investor, create the right business strategy, eventually get funded, and make your start-up successful.
