Startup Funding: How can you prepare your business to raise fund?
The recipe for a successful business is a brilliant idea, strong enthusiasm and startup funding. According to recent stats, 29% of startups fail because they run out of cash. Startup funding is a critical component to your business venture and is a big issue to tackle. Even experienced entrepreneurs might face the obstacle of securing funds for their startup. The key is being ready and understanding the different options available through the different stages that your startup goes through. Finally, evaluating your options and not letting money stop you from pursuing your dreams.
Related: Startup failures: What should you take care of in your first year?
If you want to start your own business but don’t have the funding, you can still get it off the ground in a number of ways. If you’ve never been through this process before, it may seem intimidating. Not sure where to start?
Well there’s no one answer to that. This article explores the different funding opportunities that your business has. It also explains how you can get your business ready for funding rounds through the different stages that you go through.
Related: What is a startup ecosystem? The terms you need to know
Get your business ready for startup funding
Startup funding is available in all sorts of forms, and an entrepreneur would be wise to consider and evaluate all forms of funding available for each stage of the business.
As the small business grows and evolves, different forms of funding will make more sense and be available for that stage – moving from family loans and personal savings to more complicated sources like angel investors and seed rounds.
Before you start raising funds, you’ll need to know if your business is ready or not. Let’s explore how to get your small business ready for funding.
Idea phase. Is it worth it?
Before you rush into the funding process, stop for a second and think about your business’s idea. Yes, your business idea might have seemed perfect when it came to your mind; but that doesn’t mean that it’s flawless. You’ll need to ask yourself: Is my startup idea of any value? Is it worth it? Am I tackling a pain point and providing a solution? If yes, then you’re on the right track.
Don’t forget to stop, adequately assess your idea, and do intensive market research before you jump in.
Before you start pitching your idea to investors, you need to have a clear understanding of how you plan to operate your business. This means you need to put together a business plan.
First, it’ll be hard for you to raise money from an investor without a business plan. Because investors will need to see financial projections before they give you their money. Also, this plan will set you up for success. It will act as a reference for you to remind you of how you should proceed with your business.
What do you need to include in your business plan?
- Company description: Who are you? What do you do?
- Market analysis: Discuss information and research your competitors and your target market.
- Organization and management: Outline the organizational structure of your company and have clear and defined roles for managers and other positions.
- Service/ product: Explain the products or services you’re offering
- Marketing and sales: How you’ll market your business and your sales strategy
- Funding: How much money you’ll need for the next 3 to 5 years. Calculate all the necessary investments, risks and potential profit.
You can download business plan templates here and start customizing your own.
Where can you find funding for your startup?
You might be asking yourself: where do I start with startup funding?
Well, it depends on different factors such as the stage of your small business: Did you formulate an idea for your business? Do you have a business plan ready? Do you have a prototype of your product/ service? Did you manage to secure round A fund?
In fact, you can get funding from multiple sources. We will explore four sources of startup funding and then you can decide which one is best for your business.
Loans from friends and family
Your friends and family are your number one supporter, they believe in you and trust you.
Don’t be afraid to ask them for a loan. Unlike a bank, you can pay them back without any interest.
On the other hand, you have to calculate the risk associated with this. You definitely don’t want to take a loan your friends gave you in good faith and lose it. This might be a motive for you to work hard and let your loved ones down.
Loans from family and friends are usually in the very first phases of your small business. When you just have an idea and need the funds to fuel it and work on formulating a business plan.
Crowdfunding is a great way to support the first stage of your startup launch, empower you to make your minimum viable product, and the perfect proof for investors that people are interested in what you are doing.
The emergence of crowdfunding platforms provided the founders of startups a unique opportunity to implement their ideas and deliver them directly to consumers.
You can check a list of top crowdfunding platforms here and all the detailed information you’ll need to start crowdfunding.
The main thing to consider is to choose the most suitable platform and present your idea correctly. You need to provide the crowd with an opportunity they can’t say no to.
Venture capitalists (VCs) and Angel investors
Although venture capitalists and angel investors are often used interchangeably, they are different.
Angel investors and VC firms invest in your company in exchange for an equity share. The difference is that angel investors invest during the seed funding stage, whereas VCs typically look to get involved a little bit later. Also, a VC firm has a committee and advisors working together to take the decision, while an angel investor may decide on their own
If you decide to take this route, be prepared to give away a portion of your business. Yet on the bright side, if you find the right investor, you may benefit from their expert advice and management skills.
So, it’s important for you to be able to articulate your business plan well, if you want to convince an investor to give you their money.
You can check platforms like angel.co or Angel Investment Network to find eager investors.
Another way to get startup funding is through pitching competitions. They are an amazing opportunity to put your idea into test. You will be put on stage, in front of investors and you will present your pitch. These competitions are usually attended by multiple investors and if you nail it and you might just walk away with multiple funds.
To enter a pitching competition, you may need to pay a fee and prepare an impeccable pitch deck.
Remember that these investors get hundreds if not thousands of pitches, you need to present them with a unique idea and a well thought pitch.
Try looking for pitching events happening around your city. You can also check Arab startup competition, Arab Harvard Startup Competition and GITEX Supernova Challenge.
Startup funding tips
Finally, we have some tips to share with young entrepreneurs before they dive head in looking for funds.
We know that starting a new business is exciting, but it’s not cheap. Although you have several options to find funds for your startup you need to:
- Minimize initial business costs.
- Start with a strong business plan.
- Come up with realistic financial projections.
- Try to make the money you have last as long as possible until you get a steady income.
- Instead of paying for an office, you could work from your home or a shared office space.
- Use cost-effective materials.
Remember that whatever route you choose for yourself, make sure that you have a return on investment plan. And now you have a better understanding of the opportunities that your business has for startup funding. Choose the most suitable direction for your business and don’t forget to be well prepared.
Image by: Sabine Peters via Unsplash.