Funding is as critical to a startup’s success as the idea, if not more. Plenty of startups fail, primarily, either because of under-funding or having too much money before learning how to use it correctly.
In this blog, I am going to explain the best strategies for a startup to approach funding. Before we get into strategy, let’s explore the different sources of financing and investment:
Angel Investors – These are high Net Worth Individuals in your community who are always on the lookout for investment opportunities with a good Return on Investment (ROI). They prefer knowing about investment opportunities through references, connections, and community networking.
Venture Capitalists – These are firms that have access to more substantial sums of money by pooling together a fund of many individual investors. Their focus is to invest in startups that can fetch high ROI in a 10-year plan.
Banks – Offer loans and expect interest as ROI. They get interested usually when you have existing transaction history (which means revenue).
Incubators/ Accelerators – Both private and Government-backed, focused on emerging technology, continually seeking innovative solutions to nurture them and hyper-scale.
Look at more sources in the graph below:
Most entrepreneurs have a pretty good idea of where to get funds. What is lacking, however, is the best strategy to approach funding. So let’s have a look at five best practices that successful startups have used to get funding:
- The founder’s Vision – Sounds cliché, but the truth is that as an early-stage startup, the one thing that you have more than anything else is, passion! Therefore, it is vital as a founder to display this passion while pitching your startup to investors, team members, and customers.
- An excellent management team – Investors are not interested in individualists. As the founder, if you believe that you can do it all and only you can, then you’re not getting any interest from investor profiles. Investors need to see a strong team with different skills, handling core processes of building a startup from scratch. Even if you are outsourcing your team, it is better than not having any.
- Define the problem first, then solution – A startup is not a startup if there’s no problem it is trying to solve. That’s why the first thing you want to talk about in your investor pitch is the problem that exists in the market. That you’re going to solve/ or are solving.
- Talk about your customers’ experiences – The best time to pitch to investors is when you have customers. Get their testimonials, references, and user experience. Leverage that to win investors over. Also, having customers means you have better KPI’s and Metrics. You’re in a stronger position to convince investors and even banks to provide you with loans to boost your operations.
- Bootstrap – Investors love entrepreneurs who have built success stories through struggle and hard work. Overnight rags to funding stories are seldom true. So don’t be afraid to take that leap and get out of your comfort zone to build something meaningful, something you genuinely believe. Investors will love your story and you!
Focus on building your startup through passion, and initial funding should best come from founders, family, and friends. This way, you’re not at risk in case of failure. Only pitch investors when there is more clarity through customer feedback, make sure you have a finished product, and a performance track record.
Investors want to fund reality, not just an idea!
Founder| CEO| Coach @Startup MC
Nitesh is an innovator and entrepreneur with 10 years in business leadership. He is an expert in all aspects of business: formation, operations, finance, marketing and management.