Raising Funds (Valuation)
Now that we have an idea, a business plan, a market product. The next thing is to mount the challenge of raising monetary funds for a startup.
Capital is the heart of any business which continuously pumps money to keep a startup going plausibly. Without raising funds for your business idea, it only remains a dream in the mind and on the paper. This stage in startups worries lots of entrepreneurs because it’s the most challenging stage which demands all your resources and networks to fund money.
Two important terms not to mix with each other. Funding and financing.
Funding is the money you get from different government’s grants or organizations wanted to involve in your business. They don’t extra charge you, but it is based on an agreement between you and them. This is probably interest-free.
Financing, on the other hand, involves interests along with the original capital that you have taken from them. This is mostly what banks do. Need not to worry too much about this technique as your exponential growth won’t mind these trivial matters.
Some of the challenges in getting investors for your idea are ill-prepared pitch, lack of a sound business plan, loopholes in market research, unsuitable product placement, and security threats to intellectual property. These reasons can drive the investors away from your startup idea.
After overcoming all these challenges, you need to know the type of investors who can pool money and resources for your company’s growth. The summary of some great investment options provided by Profitbooks is given below:
One of the popular ways of gathering funds for your firm is crowdfunding. You collect funds in the form of little loans, pre-order ways, and contributions from a great number of people. Basically, you put information about your company, and its business plan in the public space. People get notice of it and invest if they like your prospects of earning those profits. Fundlined has worked on this principle of investing.
If you think your idea is better than multiple investment-seekers out there. One way is to take part in contests where on impressive business plan or product delivery you can win and raise an optimal amount of money to fund your company. MIT$100K and MicrosftBizSparks are two examples of that type of competitions.
This sort of funding involves you more at the center of attention and trust. For instance, funding from friends, family, and your own sources is included in this type of investment. It can also motivate some other investors to consider you a serious investment option.
In the hard times of a startup, Incubators can be of great help. They provide training and opportunities to make connections with other investors, mentors and startup owners which can inspire collective learning too.
These are serious-minded group of investors who looked after your financial issues if they see potential prospects and high returns in case of investment to your startup. Angel investors are very influential, and they have a track record of helping in aiding great ventures like Google and Alibaba. Due to their expertise in this field, they can offer useful guidance too.
When you have ideas and a viable business plan, other people can join you as business partners. But there is an important thing to keep in mind: alignment of aims and goals with your business partner. As growth gets accelerated when there is a considerable amount of funding is available ready to boost the machinery and operations of the business. Similarly, growth can be halted by unwarranted conflicts between founder and investors.
Government and Banks:
Getting loans from the bank is no doubt a hard job. They won’t get convinced easily. But some government schemes of getting loans and grants can help a startup owner to end his financial worries. In the US for instance, grants are available for small businesses.
Imagining a startup is beginning to pick up a little pace, you will require different sort of funding for accelerating it. These are expertly handled funds which are allocated to only those startups which have a tremendous amount of potentials in growing and making huge profits. This is a viable option only when a company is sure to earn profits within a period of 3-5 years.
Product testing to raise money: Another dominant way of raising money is to validate the popularity of product before potential investors by launching a drive of testing your product at a lower rate than the actual product. If you can run it successfully, new investors would be at your doorstep to invest money in your venture.
The choice to make: Series A. Or Seed
We have found guidance about it here.
In seed round, a small number of investors put their money in your startup to help you in the developmental stage of your product, in market research, and in overcoming beginning challenges in launching a product. Investors have the option of getting a stake in the stock exchange or equity.
While Series A attracts bigger investors like VCs, and venture capitalists who probably have an interest in having shares in your company.
Both have their plus.
Consider, for instance, Seed round where you will have plenty of time to modify your marketing strategies and business models. And due to the constant availability of MVP and improvement opportunity in it is a viable discourse for attracting more investors as you go along. However, in terms of high growth and being free from financial burdens and management you need to go for Series A. option. This will also help you in growing exponentially at a much faster pace than with a seed round.
The decision is yours to make.
Questions to help you think:
- How can I raise money with minimum interest rate?
- Why would investors be interested in my product?
- How can MVP help in raising money?
- How much capital can be raised with the help of friends, family, and some business partners?
All the above-mentioned types of investors are to get a startup funding, but the owner of the startup should try to minimize the expenses as well. That’s one way of generating fund too. Other smart methods include but not limited to pre-selling of products, sharing office space, and hiring interns. For a successful startup, in addition to a sound business plan, there is also a need to have a compatible and timely plan for raising funds too.