Things to Keep in Mind While Raising Money for Your Startup

The hardest part of a startup business is to come up with something that people will want, and second comes raising money to create the product or service from scratch. Selling a product to investors is far different from selling it to your customers; not only investors are much fewer in number, but also tend to evaluate your product with a brutal eye. To add to the harsh reality of things, markets are generally unforgiving in this regard. Let’s go over the five basic essentials that you need to keep in mind while fund-raising for your company:

1. Target Angel Investors.

An Angel Investor is basically an individual or a group of individuals that are willing to fund a start-up or an existing business in exchange for ownership or convertible debt or equity. It is a common misconception that angel investors will invest only if your business has a good track record, which is far from the truth. If you have a unique and well researched business plan with innovative prospects, it is very much possible that you can score an angel investor. The trick is to keep their interest by showing them how you intend to progress with your business in order to make meaningful profits. Be deliberate and thoughtful while approaching them. Always remember that since angel investors own a part of your business, they may expect to have some kind of say in how things work. Moreover, finding an angel investor is not a quick process and may take several months of meeting with different people, before you start getting favorable responses.

2. Build a working prototype.

Don’t just sell a promise of your vision regarding the business, but, make it sound more concrete by building a working prototype of your ideas. A prototype speaks a thousand words. This may not be fully functional, however, make sure that the main sections are built and running. Building a prototype will prevent unnecessary assumptions being made and important decisions being overlooked. For example, if you aim to create a website for your business, produce blueprints and define the user interactions that will be associated with each page. Make a video or a Powerpoint presentation detailing the product, its features, profit margins, manufacturing process, etc.

3. Enable social media management.

Once your start-up is up and running in its initial stages, reach out to the customers by making your presence known on social media sites such as Facebook, LinkedIn, Twitter and more. This will not only give you a platform to interact with already

existing customers by continuous updates from your side regarding the company’s progress, but it will also serve as a big step in attracting potential investors. For such instances, it is necessary to make it easy for investors to reach out to you. Keep your profile up to date with the company’s history, statistics, ongoing projects, working team, locations, contact information and feedback options. Sometimes, people you’ve dealt with in the past will also come out to support your venture with the minimal donation they can muster, out of gratitude for your time and service. Be open to such options. Remember, each penny counts.

4. Revenue based Financing.

This type of method for raising money is perfect for small businesses and new startups which are not capable of borrowing money from a bank in the form of loans, due to lack of required assets. In revenue based financing, you borrow money, promising to pay back the loan from the revenue that is generated from the company’s profits, until the debt is fulfilled. The biggest advantage of using this method is that it does not depend on the collateral or profitability of the company; instead payments can be made to accommodate based on the cash flow and (usually inconsistent) profits.

5. Continue working on your startup.

The whole course of meeting with investors regularly and resolving issues related to the same can be very time-consuming. Every day, you will find yourself left with lesser and lesser time to involve yourself with moving your startup forward. The best approach to deal with this problem is to divide your company into groups based on the tasks they are assigned. Create a team of people who are responsible for maintaining a steady progress with your company’s operations, while the founders would be the ones to deal with the investors. Often, companies come to a standstill while raising money. Don’t let that happen to you. Remember, investors like companies that are dynamic and always have something on their plate suggesting growth and traction.

Photo Source: 401(K) 2013, John Zeratsky