Make & Break of Startup's Fund Raising

Raising money is one of the most crucial elements that can make or break a business. It takes a lot of time, effort, and money to convince investors that your business is worth funding. Sometimes it is more challenging because you have to approach 100+ investors, explain why you need their money, and convince them that you have a successful business model.

As an entrepreneur, you are most likely aware that you need a lot of capital to grow an organization. You must have heard about the success stories of many startups and are excited to start your own business. But, there is a lot of competition between every product, idea, and startup. Every company has different needs and may need funding at different stages. Yet, many first-time founders (and even veterans) have no idea how to approach investors for funding and what kind of?pitch ?they should prepare.

It is difficult to get funding for a startup, but if you do your homework right, there are many effective and proven methods to get funding smoothly. Here are a few valuable tips that help startups in fundraising.

1. Developing A Winning Business Model

The first and foremost thing is to create a commendable and trustworthy business model. Your enthusiasm for your idea cannot replace a stable business model and will be the reason investors invest in your company. In fact, the viability of any startup business depends on it. Hence, you must chart out detailed steps as to how you will proceed with growth in the future.

In an interview,?Codie Sanchez , Managing Director & Partner at Entourage Effect Capital, told Forbes, “I’ve raised billions across funds, startups, and alternatives, and I see the same thing happen constantly. We investors want to fund your future revenue. The truth is that real founders don’t pitch ideas and dreams; they pitch proven business models and, even better, ones with revenue and traction. Real founders know that investors are there to make a return. It is a trade of our money for your time. That means you need to show a clear path to profitability and outsize returns that you can explain inside and out.”

2. Know Whom You Are Pitching

It doesn’t matter how great your product is or what kind of growth you are showing. If you’re pitching the wrong people, they will not invest. Entrepreneur and LinkedIn co-founder?Reid Hoffman ?said: “It’s more important to have the right person say yes than it is to have everyone say yes. The best outcome is an investor who can help you build the company and realize a market opportunity.”

If you are the founder of a startup, you must know whom you are pitching. Firstly, you must understand that investors are not all alike. They have differing backgrounds, investment philosophies, and outlooks on life. Plus, they have different amounts of money to invest in your company. When you pitch an individual investor or angel group, one way to find out about their backgrounds is to do online research. Check their background, area of interest, previous investments, etc. That will help set you up for success.

3. Go for Crowdfunding

In recent times, crowdfunding has become a great source for raising money for startups. Crowdfunding is a process of collecting funds from many people over the internet. This process of gathering money involves contributions from people in small quantities. In India, crowdfunding transactions are expected to reach?$7.6m in 2022 .

One of the best platforms for equity-free crowdfunding is?Kickstarter , which allows startups to collect small amounts of money from people who want to support the startup and its idea. The project creator sets funding goals and deadlines. Anyone who likes the project is welcome to pledge money. All backers’ credit cards will be charged once the project has reached its funding goal. In case the project doesn’t reach its funding goal, no money is charged. Kickstarter funding works on an all-or-none concept.

4. Look for Angels

Angels are the best way to raise money early on. Angel investors are typically wealthy individuals and established business professionals who like to invest their money in startups.

In 2021, angel and seed investments in Indian tech startups reached record levels alongside a second funding boom. Over 306 deals,?$471 million ?was invested at the seed stage. To find angels, check out a platform that connects entrepreneurs with investors, such as?Exitfund .

5. Consider Local Loans or Grants

Going local for funding sometimes may be a more suitable solution for your startup. Local banks fund small businesses, especially if the business owner personally shows up with an impressive business plan. This increases your chances of convincing the loan officer to agree on financing. If you fail in securing a loan from your bank, don’t stop searching for other funding sources. Your good relationship with your bank can motivate them to connect you with other designated banks that offer loans to businesses.

Another option is to approach organizations such as the?Small Business Administration (SBA) ?that are always willing to offer grants if they feel you qualify for any of their grant programs, such as minority-owned businesses, women or veteran-owned businesses, etc.

Avoid These Big Mistakes When Fundraising

Unfortunately, many entrepreneurs don’t have much experience pitching investors. They do not plan ahead and make mistakes that squander their big chance. To avoid that fate, here are some common mistakes to avoid when pitching investors.

1. Lack of Research

You may think your business idea is great, but you need to research to be sure you’re right. Look at the industry and find out if there’s actually a market for your product or service. See how much you can make per month and how much you will need to spend to get started. You must then create a solid business plan showing how you will grow the business and earn a profit.

An Indian startup?GoZoomo , a marketplace for used cars, failed due to a hollow business plan. Their concept was relatively new in India and would need more time to develop.

2. Lack of Passion & Energy

You might know everything about your product or service, but you won’t win their confidence or money if you lack energy or passion when pitching to investors. You need to show off your excitement and enthusiasm for your idea and deliver every word with conviction.

3. Losing Focus

When you go for funding, you must focus on one area at a time. Thus, you can demonstrate to potential investors that your product or service will be successful and in demand. For example, if you have a social media app, focus on the user experience, how it’s better than competitors, and how people will use your app once it’s launched. This will increase the chances of investors investing.

4. Pitching Too Soon

Pitching too soon is one of the biggest mistakes that entrepreneurs make. Don’t start pitching until you have a well-organized slide deck and a prototype of your product or service. It may be tough to convince investors to take you seriously. To increase your odds, use concrete evidence to back up your claims.

An Indian startup,?Just Buy Live , failed due to an inefficient business model. Despite raising $20M in Series A and $100M in Series B within a few months of starting up, they were forced to cease operations nine months after raising Series B funding.

5. Not Seeking Expert Advice

You should always seek professional advice when you are looking to raise money. There are a lot of mistakes entrepreneurs make when they are raising money, and it is essential to learn from the experience of others.

Experts do not simply provide legal documents and negotiating assistance, but also they help you prepare a strategy, draft your pitch deck, and understand the market dynamics at play so you can make the best decision possible. Don’t go at this alone.

Takeaway

Startups can be a great way to pursue a dream and change the world. With hard work and the help of outside funding, new startups have the ability to thrive. If you’re getting ready to start your own business or already have an idea for one that you’re working on, consider these five tips to improve your startup funding and these common mistakes to avoid. Once you are ready, apply at?exitfund.com ?to start pitching your startup to investors around the world!