March 17, 2016
The majority of startups need some financing to get them off the ground. They need an injection of capital to get them over those first major hurdles. But getting ready for the first round of financing isn’t easy because you have more competition than ever before. Every industry is experiencing an uptick. For example, the payments industry saw corporate investment increase by 335 percent.
This guide is going to introduce you to some of the tips you need to follow in order to prepare your startup for funding.
Get Your Business Plan Ready
Your business plan is the first thing investors will see. It will also be the primary marker they use to make a judgment call on you. Your business plan shouldn’t just stick to how you think your company is going to be successfulf. It should go into the big market risks facing you and the likelihood of you overcoming them.
The key to nailing your business plan down is to be honest in your valuations. The majority of investments are rejected by investors because they don’t buy into overly optimistic predictions.
Be sure to have a section on exit opportunities. Not all investors will want to be in this for the long haul and they will want to know how easy it is for them to get their money back.
Perform a Financial Audit
Investors are going to want to know exactly what you intend to do with the money. Examine the financial needs of your company and identify where additional funding is needed. This serves two purposes. First of all, you are able to clearly tell investors what you will do with their money. And you’ll ensure that you won’t be wasting any money.
There are many potential options open to you and you won’t be able to utilize them all. Weigh up the pros and cons of each option. Put a tentative plan in place so you have the potential for change later on.
Do Your Homework on Investors
It’s amazing how many startups don’t spend time considering who they are going to approach. Just because an investor specializes in small business doesn’t mean that they are right for you. You are not just looking for an investor you are looking for someone who can take your company to the next level.
A startup with no outside help has a high chance of failure whether it happens to have a thousand dollars or a million dollars.
Be Smart in Approaching Investors
All investors want something different. Some are conservative and want to see guaranteed returns with a range of security measures in place to protect against loss due to banking and investment fraud. Others may want to take a punt, but they only want to take a punt on tech startups.
As you can see, winning over investors requires a different strategy every time. Don’t waste valuable time and effort by approaching the wrong people. Too many people have spent months seeking investment only to come back with nothing because they approached people who wouldn’t have had any interest in them in the first place.
When Will You Need More Investment?
The time to start thinking about when you are going to need more investment is now. Your startup should be prepared for both this round of financing and any future rounds of funding. You should attempt to look as far into the future as possible when preparing your startup for investment.
One important consideration is whether you are willing to give away any equity. Startups can either take on investments in the form of a loan or they can provide a share in their company in exchange for the money. Both options come with their own pitfalls and it’s vital that you weigh them up with a clear head.
Investment Is Not a Silver Bullet
Startups are often seen as a way of making more money than with a degree. They are seen as your ticket to a better future, assuming you can secure the investment you need. But the reality is that investment is no silver bullet and it will never provide you with a guarantee of success.
It’s not uncommon to see startups take a lot of money and throw it right up the wall because they don’t know what to do with it. The right team behind a startup with a solid business plan in place will always secure better results.
Investors know this and that’s why it’s often seen as so difficult to actually get first round financing. Come in prepared and make sure which startup funding tactic is the best option for you.
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