Get the Funds You Need
Finding the right funding for your business or project can seem daunting, but with the right strategy and preparation, securing financing is possible. Whether you need money to start a business, expand an existing company, or fund a new initiative, following some key best practices can help you get the capital you need on favorable terms.
Assess Your Funding Needs
The first step is to carefully evaluate how much money you need and what you will use it for. Create a budget that covers startup costs, operating expenses, equipment purchases, and any other anticipated outlays for the first 1-2 years. Be realistic about costs and don’t underestimate—it’s better to ask for more than you need than not enough.
Factor in some contingency as well to account for unexpected expenses. Also consider the timing of your funding needs. Do you need a lump sum upfront or periodic infusions? What revenue sources or payment cycles will support repayment? Answering these questions will help determine the best financing options.
Explore Financing Options
With your needs defined, now look at funding sources. Common options include:
- Bootstrapping: Funding your venture with personal savings and operating revenue. This avoids debt but may limit growth.
- Business loans: Banks and alternative lenders provide financing that must be repaid with interest. Rates and terms vary greatly.
- Angel investors: Individual investors who provide capital to startups for equity or convertible debt. Usually higher risk tolerance than banks.
- Venture capital: Institutional investors who provide large amounts of funding in exchange for equity stakes. More hands-on involvement and preference for high-growth potential.
- Grants: Non-repayable funds from government agencies or nonprofits. Requires fitting specific criteria. More common for non-profits or research.
- Crowdfunding: Raising small amounts of capital from a large number of backers through an online platform. Popular for creative projects.
Assess which options align best with your business model, stage of growth, industry, and ability to take on debt or give up equity. A mix of financing types is common.
Improve Your Risk Profile
External funders are more likely to provide capital if they perceive you as a “low risk” investment. Some tips for reducing risk:
- Demonstrate market demand: Research your target customers and have evidence of their interest in your product/service. Get letters of intent from prospective buyers.
- Highlight competitive advantages: Show how you will differentiate from competitors and have an edge in your market. Protect any IP with patents/trademarks.
- Assemble an experienced team: Investors commit money to people as much as ideas. Build a team with the skills to successfully execute your plan.
- Provide realistic projections: Forecasts should be conservative and supported by facts and comparable benchmarks. Underpromise and overdeliver.
- Have skin in the game: Putting your own money or assets on the line shows commitment and aligns incentives with investors.
- Operate before you raise: Piloting your concept on a small scale first proves feasibility and works out kinks.
- Start generating revenue: Even small amounts of initial revenue demonstrate traction and product-market fit.
The more you can derisk your venture, validate your assumptions, and show progress, the better position you will be in to raise external capital.
Create a Strong Business Plan
All prospective funders will want to see a comprehensive business plan. This is your opportunity to sell them on your idea and abilities. Key components include:
Executive Summary: Highlights your business concept, financial projections, management team, and key milestones. This gets read first so make it compelling.
Company Overview: Explains your core business, target customers, value proposition, and competitive positioning. Sets the context.
Market Analysis: Research validating customer demand, industry trends, competitor landscape, and how you will capture market share.
Products/Services: Details what you will sell, your unique features, intellectual property, production plan, and supplier relationships.
Marketing Plan: Strategies for promoting your brand, acquiring customers, and developing channels, along with sales forecasts.
Operations Plan: How you will organize, staff, and run your company. Cover core capabilities and partnerships.
Management Team: Background on key personnel demonstrating why they make you investment-worthy.
Financial Plan: Projected income statements, balance sheets, and cash flow statements. Details key assumptions and metrics like breakeven point.
Funding Request: Exact amount of capital sought, proposed uses, expected return on investment, and equity/debt terms.
Appendix: Supporting documents like licenses, patents, letters of intent from customers, owner resumes, market research data, etc.
Refine your business plan until it presents a clear, compelling vision that instills confidence in potential investors. This is your pitch deck and credibility builder.
Build Relationships With Investors
Even with a solid business plan, you need to proactively network with the investor community to source capital. This may involve:
- Utilizing your connections: Ask trusted business associates for introductions and referrals to their funding contacts.
- Attending pitching events: Pitch competitions and venture capital conventions let you present to interested investors.
- Targeting angel investor groups: Identify angel groups relevant to your industry and get on their radar.
- Cold calling/emailing: While less effective, you can directly reach out to prospects through association directories. Follow up persistently.
- Getting visible: Attend conferences and tradeshows where you can organically interact with potential backers.
- Leveraging LinkedIn: Connect with investors through groups and build relationships through regular communication.
- Seeking small investments first: Early modest funding from angels/friends shows momentum and de-risks future larger rounds.
By building a network of investors over time, you will have sponsors who know you and can vouch for you when pursuing major financing from institutions.
Perfect Your Pitch
When you secure meetings with prospective financiers, you need a compelling pitch presentation. To stand out:
- Keep it simple: Avoid clutter and buzzwords. Explain your business clearly and focus on the essentials.
- Tell a story: Take investors on a journey by framing your idea as a narrative. Make them care through emotion and vision.
- Convey your passion: Investors back people foremost. Let your enthusiasm and motivation shine through.
- Emphasize solutions: Demonstrate how you address real customer pain points better than alternatives.
- Have visuals: Slides with charts, images, and infographics engage and clarify better than text. But don’t overdo it.
- Know your metrics: Master the key numbers in your projections and how they compare to industry benchmarks.
- Welcome hard questions: Expect tough queries and show you have answers. Spin negatives into strengths.
- Close strong: End by recapping your value proposition and next steps. Provide contact info and follow up promptly.
Refine your pitch with feedback from trusted advisors. Be ready to adapt it on the fly based on investor reactions. The more you pitch, the better you will get.
Choose the Right Funding Mix
Once you have secured interest from potential backers, it’s time to decide on the best combination of financing sources.
- Compare amounts offered, repayment terms, interest rates, warrants, voting rights, and equity percentages.
- Weigh projected returns against dilution of ownership and control. Retaining majority stake may be worth higher cost of capital.
- Factor in the strategic value investors can provide beyond just capital, through expertise, connections, and stamp of credibility.
- Mix debt and equity to balance risk-reward. Debt avoids dilution but must be repaid regardless of profits. Equity sharing upside usually means more patience with growth.
- Consider sequencing investments over successive rounds to retain leverage and flexibility for future capital needs.
- Build syndicates blending investors with complementary skills and networks. But limit the number of stakeholders.
With astute matching of capital to your startup’s situation and objectives, you can fund growth on advantageous terms. Be selective in taking money and make sure you share risk appropriately relative to returns.
Manage Investor Relationships
Once you secure funding, your work has just begun. Nurturing ongoing positive relationships with investors ensures support for future rounds. Best practices include:
- Provide frequent updates: Give investors quarterly reports on key metrics, milestones, and use of funds. Discuss challenges transparently.
- Welcome input: Seek investor advice and tap their expertise while still steering your own vision. Acknowledge and act on feedback.
- Give access: Arrange on-site visits and interactions with management team. Dedicate a contact person to address investor inquiries.
- Highlight publicity: Share press mentions, new partnerships, award wins, etc. to validate your progress.
- Stay on plan: Carefully manage budget and hitting projections builds confidence. Explain any pivots. Have contingency plans.
- Watch valuation: Avoid actions that excessively dilute ownership unless necessary for survival.
- Build personal connections: Bond with investors beyond just business to foster trust and goodwill.
Keeping your backers engaged, informed, and feeling heard ensures they will remain supporters when you need to tap them for more capital. Make them partners in your shared vision.
Know When to Raise Again
Most startups require multiple rounds of financing to fully scale. The key is timing new funding at strategic inflection points, not just when you are running out of runway. Next raises make sense when:
- Validating concept: Seeking seed money to build MVP and demonstrate initial traction.
- Launching: Raising larger Series A round to bring product fully to market after MVP tests viability.
- Expanding: Taking business to next level by adding locations, capabilities, inventory etc.
- Acquiring: Funding M&A activity to absorb competitors, gain market share, or expand territory.
- Distributing: Capital to manufacture at larger scale, ship product, or build sales channels.
- Competing: Raising large war chest to defend and advance against disruptive competitor.
- Exiting: Final push to maximize valuation and liquidity event for early investors.
Move too soon without necessary milestones and you risk dilution on low valuation. Wait too long and you surrender initiative to competitors. Work closely with investors to determine ideal timing for next funding cycle.
Make the Ask
When the time comes to request additional capital from current or new investors, avoid hesitation. Ask boldly and unapologetically. Demonstrate how increased investment will multiply returns through your planned growth trajectory. Highlight trophies like prestigious partners, surging revenue, and first patent as evidence you are ready.
Create internal momentum by securing anchors investors early who commit large portions of target round. Use their stamp of approval to convince others. Set minimum and maximum fundraising thresholds to avoid leaving money on the table or falling short.
Most importantly, show absolute conviction in your vision. Back up your assertiveness with facts, but don’t be deterred by skeptics. Your belief will sway the right investors. The story of every unicorn startup began with an audacious ask that was met. Now it is your time. Claim it.
Funding a new business or initiative may seem daunting at first. But approaching it systematically, strategically, and persistently can open doors to the capital you need. Do your homework, build relationships, prove your concept, and craft a compelling vision. With the right preparation and attitude, you can get the funds your idea deserves. The only limits are those you set yourself.