What Should You Know Before Raising Money For Your Startup?
You have a fantastic business idea, and you want to bring it to life. To do that, you may be thinking about how you will fund this business. After all, money is vital in a successful startup. It's easy to glorify other young businesses that took venture capital or other investments and think you will have the same successful outcome as they did. But, every business is different, and with that, so is your funding. So, we want you to hold the breaks on all of your preconceived notions of funding your business and keep reading along to find out everything you should know before raising money for your startup.
Think Outside The Box
You need to find out what type of funding would work best for your business, and that's not always the traditional route. Traditional sources of startup funding like angel investors and VCs don't have to be the only route you can take. There are quite a few ways to raise capital through nontraditional means like:
- Family/Friends- perhaps you have family or friends who have money and like your idea. Receiving funding through them can be risky, but if the benefits outweigh the risks, this could be an excellent option for your startup.
- Business Incubators- this is an organization that provides a readymade set of resources for early-stage startups to set up and roll out. Resources include office spaces, computers, conference rooms, support staff, etc. Many large universities offer business incubators. Or, if you are not in college, you can try The National Business Incubation Association.
- Vendor Financing- this is the opposite approach to customer financing. You can ask suppliers to give you a loan to help your startup. This is a difficult option as vendors have to know if this business will be successful. However, if you can prove it to them, there's a chance you can get funding this way.
- Crowdfunding platforms- There are various crowdfunding platforms online nowadays. If you have a great idea that can make a difference in the world, share the story and your idea and see how far crowdfunding can get you.
Know How Much You Need
You can’t just start asking for funding before knowing exactly how much your business will need. That would make you look unprofessional and not ready to start your business.
You should create a realistic business plan and financial forecast that outlines details of where the funding would go. Most successful business owners suggest stockpiling at least six months' worth of operating funds before opening a business. And always remember to plan for the worst. Starting a business is complex and challenging. You never know how long it could take to kick off, and if you receive funding and need to start paying back, you need to have a backup plan. With a quick google search, you can find tons of calculators and suggestions on how to figure out exactly how much you'll need for your startup business.
Your Valuation
As mentioned above, you'll need a business plan and financial forecast before trying to raise money. This includes a valuation of your company. It would be best to try to build your company value as much as possible before going out and raising funds. When you feel you've done everything possible to maximize your positioning, you're at a better chance to get funding.
Decide When You’ll Need Funding
When you realize how much you need and evaluate your business, you'll need to determine how quickly you need it. It's important to note that venture money takes a long time, and grant money can take even longer. While bank loans, friends, or family can take less time. Deciding which type of funding is very dependent on how fast you'll need the cash.
Here are a few ways to know when you’ll need to start raising capital.
- You're unable to meet demand- if your product is already on the market and is becoming successful, but you can't meet demand, this is a good sign that raising capital is right for you. You need to be able to fulfill purchase orders, and investors will already see your business is doing well.
- You lack the staff to reach milestones- if you're not meeting business goals because you lack a team, that is a clear sign you need more staff. This means you can tell investors why a lack of staff prevents you from maximizing your business.
- A clear roadmap of the future- If you did all the research and created a clear roadmap of the future and where and what you'll do with raised capital, you can prove this to potential investors who will give you funding.
Your Audience
Another crucial factor in figuring out before going out and getting funding is figuring out your target market. How will you create a sustainable business if you don't understand your audience? So, before going out and trying to get funding, figure out how your product serves a problem and that it helps your audience efficiently and cost-effectively. The main goal of a business is to create a product that can genuinely help. If investors don't see that clear line, you won't get the funding you need, and your business can fail.
Find Funding!
This is no easy process, and it is time-consuming and challenging. However, if you know that your business is solving a problem, you have a clear roadmap of the future of this company, or if you already have some success to prove you have a chance to receive funding you will very well need for your startup. You can't show up empty-handed to potential funders, and you need to follow the above advice before you start raising money for your startup. So, if you accomplished all of the above steps, start trying to get funded today! Whether that's nontraditional funding or traditional, you must decide what is best for your business.
