One of the biggest challenges start-ups face today is securing funding for their businesses. Although investors are constantly looking to finance promising start-ups, it is sometimes difficult to convince them to invest. However, entrepreneurs can take some proactive steps to increase the chance of securing funding for their business ventures. Some of the strategies are listed below.
- Become Your First Investor- Generally, investors are more inclined to invest in entrepreneurs’ businesses if they see that they are dedicated and have invested their own money in the venture.
- Solve a Problem in a Disruptive Way- Investors are more likely to invest in businesses that are presenting creative and disruptive solutions to problems facing consumers.
- Learn How to Pitch- Aspiring business owners need to be able to pitch their businesses in the simplest way and shortest time possible to potential stakeholders. It is also imperative that prospective financiers clearly understand who you are and what you do.
- Tailor Your Pitch to Your Audience- Many people tend to take the easy way out and use the exact proposition to everyone from private investors to government officials. However, your pitch should vary to accommodate the audience.
Prepare Your Start-up So It is Fundable
You may follow the strategies above and take additional advice from your business advisors and mentors on the necessary approaches you should institute to secure funding. However, if your start-up is not fundable, it will simply be a waste your time. For this reason, entrepreneurs should take the time to properly organize their businesses to make them attractive to possible investors. The following are some of the things that should be considered and done to pique investors’ interests:
- Prepare Your Business Plan- Every start-up should have a business plan especially when they are planning to seek funding. The topic of business planning may be one that is overused; however, numerous entrepreneurs start their businesses without any plan. Your business plan is important because it will tell your investors what the business is about, the problem it will solve, need it is going to meet, and who the team members are. Additionally, it will let investors know the current state of the business, its future plan, the financial requirement, how the business will make money, and the anticipated profitability.
- Formulate a Well-rounded Team- Your team may also be a huge factor that determines the likelihood of getting financing for your business. Investors are eager to see teams that are comprised of people who are capable of doing the work in your business. For instance, if you intend to start a pharmacy, you need to ensure you have a pharmacist on the team, whether as a founder or as one of the first employees you will hire.
- Get At Least One Customer/Client- Investors like when potential clients take the initiative, before coming to them for assistance. Therefore, acquiring a customer before seeking funding proves to your investors that you are serious about the business, and it shows that there is demand for what you are offering.
- Establish an Advisory Board- This is especially important if the venture is your first in the start-up world or if you are getting involved in an industry that you are unfamiliar with. Consequently, having a team of experienced advisors will help make your start-up fundable. Investors will be more comfortable and more open to investing knowing that experienced personnel gives a start-up a better chance to succeed as opposed to an unproven entrepreneur doing everything alone.
- Register Intellectual Property if Necessary- If you have an innovative idea or product or a unique way of manufacturing for example, it is imperative that you protect it at all costs to avoid anyone from stealing it from you. Investors are normally more inclined to invest in businesses that have registered all intellectual properties which can help give their companies a competitive advantage over their competitors.
- Make Personal Investment- As previously mentioned, being personally, mentally, and financially immersed into the company will help show investors that you are serious about the business since are willing to make sacrifices and assume risk by investing your personal money into it.
When Should You Get Financing
You can seek funding at different phases of your business, whether from investors or traditional sources like banks. However, three main periods in your business when you should pursue funding are indicated below:
- Start-up Phase- During the start-up phase, most entrepreneurs pitch their business ideas to investors. At this point, they would have a proven concept and may have even already started the business. However, in many cases, to take the business to the next level, financing becomes a necessity. Therefore, if you are in the start-up phase, you should consider preparing to seek funding at this point if you know you will need it.
- To Expand Your Business- You may have started your business, and now it has started growing. You realize that your demand is increasing; more people want what you have; however, you do not have the capacity to deal with the growth. In this case, you need to seek funding to finance the increase. Expansion is one of the primary reasons why many start-ups raise second and even third rounds of funding.
- Launch a New Product- Whether you are trying to pivot your business, change what’s on offer, or simply add a new product or service to what you currently provide, you will need funding. If by this point your company is large enough, earning great amounts of profits, internal financing when launching new products may be a possibility. However, if such a situation is not the case, seeking funding whenever new products are to be launched may be the most likely reality.
To conclude, preparing your business and your-self for funding is an important role that management in your business will have to undertake. Spend enough time planning and preparing for this, it could determine whether or not funding is received, which can subsequently determine business success.