Author: Elena Tahora
When you have come up with an innovation that could earn you big money, you just don’t sit there and wait for it to happen. You do something to make it happen, right?
Every startup has different requirements, depending on what market needs that your innovation is promising to address. But there is one major requirement though, that is common to all startups: funding. Before addressing this need, let us start by defining what a startup is, so you will know exactly what else you will need, aside from raising funding for startups.
Defining a Startup
A startup is a new company created to develop or grow rapidly for addressing an emerging market need. A startup usually comes up with a new offering that can be sold to a large emerging market. Startups, however, are not necessarily always tech-oriented.
Another characteristic of a startup is that it is considered high risk or has a high failure rate, since the new idea is catering to a nascent market. Typically, it is made up of individuals who are lured by the tremendous growth and immediate impact that the endeavor promises.
So if you have a breakthrough idea and are seriously considering seed funding for your startup, then here are seven tips you should keep in mind:
What’s the money for?
Having learned that startups usually involve a lot of risks, you will need a lot of funds to get going. Since you are introducing a new product, process, or a service, a lot of product testing and marketing needs to be done. Such expenses often exceed your initial revenues, way more than what the founders can afford. So you will need a war chest with a lot of resources lest your investment dies; you will need it to sustain operations even before you could gain profit.
A word of caution, though. Fundraising is not for every startup there is. It is a lot more complex than you think. The keyword is always rapid growth. Investors would always look at what is in it for them. To them, lending money to startups is not an act of charity. You will have to show that your startup has a lot of potential lot more than its current rate of growth. Profitbooks has created an in-depth guide on how startups can raise funds.
Master your plan
It is important for you to be clear and concise about what your startup is and why investors should support you. Be prepared to provide compelling answers for two basic questions—who are you and what you are doing? They would also want to find out who your startup team is, your product, your customers, and your story. When proposing to potential investors, be convincing enough. Master your business plan by heart; going the extra mile won’t hurt.
Perfect timing, right funding for startups
So when is the right time to raise funds and how much would you need? It all depends on how ready you are and you have already figured out how much you need. Aside from preparedness, be ready to impress—show potential investors a few relevant metrics. Let them know how much success you have experienced in terms of your product sales and share your customer feedback with them. You might think you would need all the money you can get, but it doesn’t work in all cases. It depends on the kind of startup and the product you are offering.
Friends, family, and you
Even before you start to look out for investors, how about considering bootstrapping your startup? It should be one of the possibilities you need to prepare yourself for. If you have the money for it, self-fund your startup. Check how much money and other resources you have and just got for it. Bootstrapping your startup sends a good signal to future investors about how much effort you have put into this investment. This way, you will have full control over your startup as well. But if you believe you don’t have enough, close friends and family could be there to help you. Sounds cliché, but it is been proven many times over.
Go to bankers
Although a lot riskier, going to a bank to apply for a loan or line of credit could be a more viable option. You should be open to the possibility that family and friends may not be able to give you that much. When you consider taking out a large loan or credit line, you may have to provide collateral security and other requirements. With schemes like Startup India and Make in India, getting a collateral-free loan from the bank has become much easier.
Incubators & accelerators
With the number of new undertakings nowadays, startup accelerators and incubators have become commonplace. Accelerators and incubators help startups to attain the success they desire at every stage of development. They provide mentor advice and infrastructure facilities for startups to help them succeed. These may not necessarily be dedicated to each startup but have enough resources to be shared with other startups for a specific period.
The power of online crowdfunding
Never underestimate the power of digital media. Go online and start a crowd-funding campaign. Tap friends to spread the word. Be as creative as you can get. If you get this right and you are convincing enough, you will be amazed at how much you could raise. Going online will not just help you raise funds, this could also widen your network.
Birth pains are always synonymous with new undertakings. Don’t be afraid to fail the first time. Figure out what went wrong, study how it could be corrected, and start over. In the end, what matters most is your belief in the potential of your ideas.
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Author profile: Elena Tahora has always been passionate about helping others reach their dream of building their own startup company. Over the last ten years, she has helped different companies to succeed.
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Profitbooks
Life as an investment
