How To Raise Funding For Your Startup

“You’re building for profit and not for impact”

As a startup founder, one major thing you learn early on is that passion is not enough. Yes, you need the drive to solve a problem, but fundamental to solving that problem is capital; money. Our elders weren’t wrong when they said that you need money to make money. The dividends of a successful company is in the testimonials of its customers, but essentially, in how profitable it is.

Why Should You Raise Funding?

1. It helps you launch and develop your business idea: A common reason startups fail, is the lack of money to push the business forward. With funding, you can develop your product, hire the best hands to do that and acquire the necessary resources to ensure that development and growth happens.

2. For market entry: It is with visibility, that ability can shine forth. Even with the best solution to a problem, if no one knows about your product, it’s as good as nothing. Funding allows you to invest aggressively in marketing and growing your network. This allows you reach as many people as possible, evangelising the gospel of your solution and converting customers.

3. To expand and scale: Expansion may look like increasing your product offerings, or expanding business to other countries or hiring more employees. Whatever the next step is for your business growth, funding is a great way to ensure that growth.

4. To gain invaluable knowledge from your investor: Yes, investors primarily offer money, but that’s not all they can grant you. Your investor holds a wealth of knowledge and connections that you can easily tap into to make building easier for you.

What Are the Funding Options Available to Founders?

The first is through bootstrapping. A founder is the company’s first investor. While you believe that your product is essential to people, you have to put your money where your mouth is by investing in your startup. A founder would most likely pay for the logistics of the company’s early stages from their personal pocket.

Other options you might explore include:

1. Angel Investments

2. Incubators & Accelerators.

3. Venture capital funds

4. Bank loans

5. Crowd funding.

The end point of all these is that the founder acquires the requisite funding needed to build.

What Do Investors Look Out For Before Funding Startups?

It is essential to understand that the bottom line for investors when investing is recovering their money. They believe in your solution’s ability to generate money for them, thus they invest in it. So what do investors look out for?

1. The Founders: There is something called a “Founder-Market fit.” That is, the thing that makes a founder uniquely different to address a specific problem. How is an investor able to deduce this? First, by looking at the motivation and drive of the founder. Do they have a true belief in the problem they’re solving and how passionate are they about succeeding. Second is the market knowledge of the founder. How much do you know about the industry you want to build in? How much do you know about your market and their essential needs. Lastly, is your ability to build a team strong enough to succeed with.

2. What Problem Are You Solving: You need to be solving a need and not a want. Make sure your product is not a vitamin but a pain killer. For example, your demographic is a third world country and the people there need water for survival, so a business that sells water satchet is selling a pain killer. Now selling chocolate sweets in this same demographic might survive a bit, but isn’t a sure fire way to make money because it’s a want and not a need.

3. How Sellable is Your Product: The question you need to ask is; does your product provide the adequate value to cater to your prospective customer’s problems? Investors would interrogate whether or not your product satisfies the market demand you identified.

4. Your Business Model: There has to be a clear path to how your investor will make money and your business model communicates that. This is the plan your business has for making money. How you would deliver value to your customers in exchange for money.

5. The Total Addressable Market (TAM): How big is the problem you intend to solve? Would you be servicing 1000, 10,000 or 1 million customers. Investors would look at the market size you want to service. For example, a startup looking to “Bank the unbanked” in Nigeria, is looking at a market size of 38 million people.

What Do You Need To Raise Funding?

1. Build a strong team: Having a strong team means that you’re building with people who believe in the company’s vision and are ready to exert their skills to ensure you succeed. Since due diligence at early stage startups require looking at the management and teams, investors would look at the people building the product, their qualifications, their product knowledge and how dedicated they are to the company.

2. Calculate the funding you need: It is important to know how much money you need to get to the next stage of growth. This better informs your decision on what kind of funding option to explore. For example, if you need a small amount of money, you can crowd fund. If you want to expand to Ghana and the UK, you’d be looking at VC funding or Accelerators.

3. Build A Winning Pitch Deck: Your Pitch Deck is your opportunity to tell and sell your story. It grants your investors a bird’s eye view of your startup and helps them make an informed decision. A good pitch deck would contain the following:

- Who you are, the problem you’re trying to solve and your solution.

- Your business model.

- How you differ from competitors.

- Your ask.

- The plan for the money you’re raising.

- The potential return on investment.

4. Keep Appropriate Financial Records: These reflect your current financial status and shows an investor that the startup finances are handled properly and that it has the chances of being profitable in the future. This involves, Bank statements, Business and tax returns, profit and loss statements and revenue projections, amongst others.

5. Leverage Your Network: Investors may be gotten from introductions made by mentors, sponsors or peers willing to vouch for you. Attend industry events, pitch your startup and maintain a wide network. The relationships fostered would go a long way in aiding you build.

6. Join A Community Of Like Minds: The startup journey is exhausting. It is a lot to handle alone, thus to keep going, you need people in the same situation to do it with. A community of founders who have either gone before you or are on the same level with you. To share tips for growth, work with where necessary, provide motivation, a shoulder to cry on or for peer validation to show you that you are not alone. I strongly recommend The Founders Cabal , a community of founders, passionate about their products and hand-holding each other through the building process. They say if you want to go fast, go alone, but if you want to go far, go with others.

Finally

Startups are different so they require different funding options. It is therefore the responsibility of the founder to figure out the best option for his startup and search for investors within that line.???

The Nigerian tech startup ecosystem is enjoying recognition from investors, with recent raises like Helium Health raising $30 million dollars. There are also companies that have shutdown upon failure to raise funding, like Lazerpay which TechCabal labeled “high on hope but short on capital.”

Passion is fundamental to building, but without money to fund that passion, it is reduced to a mere dream.

Yours In Tech Solidarity,

Victoria