Expert tips and tricks on raising money for startups
Tech387 recently kicked off a blog post series specifically catered to startup founders. We embarked on this quest because we have a ton of experience building startups from scratch, being co-founders of multiple ventures worldwide. In our first blog post of this series, we tackled the most common insecurities that founders face across the globe and provided practical tips on overcoming them. If you missed the blog post and need guidance, check it out here.
Today, we're diving into the topic of raising funds. No surprises here, but we all know that raising money is the biggest headache for most founders. To make life a whole lot easier, we want to share some tips and tricks that have helped us and our co-founders successfully raise the funds needed to launch their businesses into the market. Good luck, enjoy the read, and if you have any questions, feel free to reach out.
Resolving the mystery of startup funding
Let's talk about startup funding, shall we? It's the money you'll need to get your business off the ground. Depending on the stage your business is at, you'll use the funds for various purposes like covering operating expenses, hiring new staff, or investing in marketing and scaling. Don't worry too much about it if you're starting. We'll cover some of the most common types of funding, but we won't dive into loans and debts since we're not experts in that area and haven't used them ourselves.
You can always self-fund your business if you have a steady income or savings. Fun fact: did you know that 39% of founders start with their money? It's a pretty high percentage, and we used to think we were the only ones doing it but turns out we're in good company.
Now, what we love and have done multiple times is bootstrapping. So, what's bootstrapping all about? It's not just about using your funds to start; it's about using early revenue to fuel the growth of your business. The reason we love bootstrapping is simple: it allows us to maintain control over our equity. We can't emphasize enough how important it is to hold onto some equity in the early stages of your business journey. But here's the downside: if your startup fails (and let's face it, only 8% of funded startups succeed), you could end up bankrupt. Our suggestion? Unless you have significant savings that won't lead to bankruptcy if lost, find a co-founder and try not to give away more than 20% equity in the beginning. Remember, you'll need to dilute equity later on. There's only so far you can push by yourself, and when your startup starts to scale, you'll need some help.
Another option is crowdfunding. We're not the biggest fans, but it works like a charm for many. It's a low-commitment way to garner support and generate early interest in your startup. Several credible platforms can help you with crowdfunding. To make things easier for you, we found this handy list.
Ah, angel investors, the fairy godmothers of the startup world! Finding one is like stumbling upon a hidden treasure. These individuals see the potential in your business and are willing to invest, usually in exchange for a small share of equity. It's like hitting the investment jackpot, to be honest. But let's be real here. It's something that founders can only dream of. Angel investors come in and sprinkle their magic without interfering in your business operations or having any voting rights. If you're on the lookout for an angel investor, you can explore forums like AngelList or Angel Capital Association. Now, it's no secret that having an angel investor is the ideal way to secure funds. But let's face it, it's a time-consuming process, and no matter how innovative your product is, the outcome is unpredictable.
Now, when it comes to raising venture capital, that's where we shine. That's why we've dedicated an entire chapter to sharing tips and tricks for securing funds from VCs. So grab yourself a cup of coffee, settle in, and pay close attention to what we're about to reveal.
Secure funds, win or lose it’s all up to you
Let the numbers do the talking. According to various studies, getting an investment from a venture capital firm seems impossible. Don't just take our word for it. In a recent interview, Marc Andreessen, Co-Founder & Partner at Andreessen Horowitz, shed some light on the subject. Out of a whopping 3000 applications they receive for startup funding, they only take a serious look at around 6.7% of them. And guess what? They end up funding a mere 0.7% of those that make the cut. Talk about tough odds, right? It might not be the most encouraging news, but don't let it discourage you before you begin.
The entrepreneurial journey is like a wild roller coaster ride. You're bound to experience multiple falls along the way. But what truly matters is having the resilience to get back up each time. And guess what? You stumbled upon this article, and we assure you it will equip you with the knowledge and insights you need to navigate the funding landscape for your startup. So, buckle up and get ready to ride this rollercoaster with confidence.
Here's something that every venture capitalist, including the esteemed Mr. Marc Andreessen, agrees on - your team is the most valuable asset you have. Sure, having a unique and groundbreaking idea is a starting point for securing funds. But you know what? Numerous startups with similar ideas secured funding simply because they had a strong market and an exceptional team driving their vision forward. Whatever may be lacking in your initial pitch can be improved or refined—except for the people behind the idea. That's why we've chosen to prioritize these factors in our list.
Investors consider three key factors when evaluating startups: the market size, the differentiating technology, and the people behind the startup. It all makes sense when you think about it. If the market is small, no matter how good your product is, it won't make the desired impact and won't generate a return on investment. And let's talk about technology. While it may seem near impossible to have an idea that nobody else has thought of before, you can have differentiating technology. If your technology is too similar to competitors, the chances of breaking away from the pack are low. And when it comes to people, we've already emphasized the importance of working with and investing in great individuals. Even if businesses fail, people have the resilience and ability to bounce back.
So, when pitching for investment, keep these factors in mind. Size up the market, ensure you have differentiating technology, and build a remarkable team. Because at the end of the day, it's the people who make the real difference.
To pitch or not to pitch, the question is now
Now that you've adopted the right approach to securing funds, it's time to prepare a killer pitch deck for your potential investors. And guess what? We've got you covered with a comprehensive blog post dedicated to that topic. Check it out here for all the tips and insights you need.
No matter which funding round you're currently in, there's one common factor when it comes to securing funds: a good pitch. And what makes a pitch good, you ask? According to investors, it's all about conveying your idea simply and compellingly. Think of your pitch as a guide through the "idea maze." It should effectively explain how you went from the idea's inception to its implementation. And here's the key: it needs to be understandable to everyone, even those who have never worked in your product's industry. Keep in mind that only a small percentage of startups get the opportunity to pitch in front of investors. So, once you're in that room, seize the moment and make the most of it.
Crafting your pitch is like creating a captivating movie trailer. It should encapsulate all the best parts of your business idea in a concise, succinct, logical, and compelling manner. It's your chance to showcase your story and generate excitement about what you're bringing to the table. Think of it as your golden opportunity to leave a lasting impression on potential investors.
Once you've got investors ready to provide the funding, it's time to set the terms. Sure, big venture capitalists may come with their contracts and standard terms, but here's the thing: you still have some room for negotiation. Don't be afraid to advocate for terms that align with your vision and goals. After all, it's your business.
Now, when it comes to sealing the deal, here's a crucial piece of advice: unless you're a lawyer, we highly recommend having a consultant or legal expert review everything for you. We're not implying that someone is out to get the better of you, but let's face it, there are those pesky fine-print details that none of us particularly enjoy reading. The devil is in the details, as they say. So, make sure to have someone with the expertise carefully examine the terms and conditions to protect your interests.
By taking this step, you're ensuring that you fully understand the implications of the agreement. It's all about safeguarding your business and setting yourself up for success. So, let an expert dot the i's and cross the t's while you focus on what you do best: building and growing your startup.
Unlock success together: Find a partner to simplify every step
We get it. All of these steps may seem daunting and overwhelming. Starting your own business is far from a walk in the park. But here's the deal: giving up is not an option. So, what are your choices? Well, you can try to tackle everything step by step. We like to call it "learning to walk before you run." Alternatively, you can search for the perfect co-founding partner who brings expertise where you might lack it. Finding that perfect match is no easy feat in the business world, just as it isn't in our personal lives. However, there are steps you can follow to increase your chances of success. Check for references, have conversations with current and former clients, ensure that your passion and vision align, or follow the tips we've listed in this blog post.
We're not here to claim that Tech387 is everyone's cup of tea. We understand that each entrepreneur and startup has unique needs and preferences. If you think there might be a potential match, don't hesitate to schedule a call with us. But here's the catch: there's one non-negotiable quality we seek in co-founders. We seek passion. It's an essential ingredient for success. So, let's be straight about it. If you lack passion, it might be best to search for your match elsewhere. But if you're bursting with enthusiasm and drive, then go ahead and give us a shout! We're here to support passionate entrepreneurs on their journey to success.