Got a fantastic idea, unwavering determination and a cohesive multi-talented team – but jittery about fundraising? It would not be entirely out of place to be worried about raising funds for your startup, considering that it is the one major aspect of starting your business which is completely outside your control. As per industry reports, US still keeps its leading position with almost 5 million startups, followed by fast-growing India and the booming UK.
As per the recent article by funderbeam, the USA continues to remain the powerhouse in total funding with a $78 billion investment in 2015. APAC reported 88.7% of growth in funding compare to 2014 and attracted $27 billion of investments in 2015. Whereas, EMEA attracted $15.3bn in total funding and recorded 40.8% growth in funding since 2014.
So, are there any rules for the all-important task of fundraising? Thankfully, yes!
a. Begin with Bootstrapping
It may seem like the ‘old’ way of doing business but spend each penny carefully. The more you squeeze out of less, the more control you retain over your business. There are fewer people to influence your decision making and lesser dilution of the startups Board. Remember, every penny saved is a penny earned!
b. Seed Funding
Understand the importance of seed funding. Seed funding or seed money is the first bit of money required by startups for the initiation of business – office rent, infrastructure and supplies, setting up your product base, business development and basic salaries, broadly. Ensure that you have seed funding from family, friends, seed-stage investors before diving headlong into your startup. Since it’s the initial bit of money, it’s easily the hardest to raise.
c. Establishing Milestones
It is critical to set goals for your fundraising i.e. the level at which you must raise a ‘Series A' funding will determine your seed funding, give or take some cash for liquidity. The requirement of funds (and the quantum thereof) arises at different stages of a startup, i.e. seed-stage, market research (to assess the requirement / palpable value addition of your product/ service), for further research and development on the product/ service, scaling of the product/ service, marketing and so on, and is met by successive rounds or stages of investment.
d. Choose your Investor carefully!
Read, talk to people and conduct thorough research into whether you should be approaching HNIs (High Net Worth Individuals), Angel funders, Venture capitalists, Funding conglomerates or big business houses for the specific product/ service that forms the basis of your business/ startup. Study the investment pattern of the entities, and then narrow down the five or ten investors you wish to approach. Do NOT start with approaching the five or ten investors on your final list, ever. Begin your fundraising process by meeting one or, at least, two entities not on your list. Assess in these interactions what the shortcomings in your pitch are, and prepare accordingly for the subsequent interactions.
e. Retain Professionals
Ensure that you have legal and financial counselling throughout, and especially when you begin fundraising. Do not use ‘cut and paste’ contracts or put together a scrawny excel sheet that you call your ‘financials’. This is not where you save money. Have a strategy, legally enforceable agreements and an actual financial model.
f. Financial Planning
Although you are only beginning a business and may not be aware of all the expenses involved, plan your finances. It may be vague and even involve guesswork at your end, but it is imperative to have a financial plan to be able to assess your requirements of fundraising, and at times even to be able to explain to a potential investor that the investor’s money will be spent in a planned manner, and not whimsically.
The Explainer / Formula
You may think that there couldn’t possibly be a ‘formula’ for raising money for your startup, right? Absolutely wrong. Unshackled in its ‘Formula Series’ which may be seen here, has decoded investor mindset (needless to say, subject to individual subjectivities) and reduced it to a stunningly simple equation, which is:
If you lack any one element in the above formula, or if an honest and unbiased assessment of your startup evinces you that one of the three elements are wanting, ensure that the other two elements more than make up for it.
Go Raise Funds!
In this ‘era of startups’, no doubt it looks as if everyone with an idea or concept is raising millions, but for every news report of successful fundraising, there are hundreds if not thousands that are unable to inspire the investors’ confidence. It could be because they are chasing the wrong investor, or that they have a lackluster team or a brilliant idea but no market – it could be one of the many factors that influence investors’ decisions. Plan and brainstorm relentlessly, discuss strategies and timelines with your team and with professionals, execute fearlessly, try and be revenue positive from Day 1 and, well, go raise funds!
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