For an enthusiastic novice inexperienced in the financial aspects of a startup, it is essential to learn the ropes related to raising capital. No matter how good the idea behind a business might be, without funds to back it up in those crucial initial moments, the venture will fight for survival. So, a new entrepreneur needs to raise startup capital by way of bank loans or from investors. To help you with this undertaking, here are some pieces of advice regarding funding stages and investors.
Know your funding stages
Every startup goes through a couple of investment stages on its path to success. Stages can last from several months to a year and range from $10,000 to whopping $50 million. The initial stage starts with pre-seed funding where the owner’s funds kick start the business. Then seed funding takes place and the development of products is aided by, most commonly, angel investors.
The next stage, considered as the early investment stage, consists of two rounds. Round A occurs when the business is developing a growth strategy and most often the interested parties are venture capital firms. Round B is the point where the investments aid startup’s transformation into an established company with a loyal customer base.
Round C (and sometimes Round D) is a part of the late investment stage, during which the business is booming and investments are directed towards conquering new markets, creating new products or acquiring other companies.
Deliver a potent investor pitch
An investor pitch or the pitch deck is the presentation aiming to attract and enchant potential investors. First things first, make it short and concise – 20 minutes tops and around 10 slides with little text on them. Make sure you include details about plans and financial projections so as to pique their interest.
One of the crucial elements to incorporate at the very beginning of the pitch is your goal, so they would know exactly why their money should go to your startup. As you list your general goals, you need to give details and strategies regarding how you plan to accomplish each.
To completely tip the scale to your advantage, you need to leverage on testimonials and your storytelling skills and don’t forget to leave time for their questions at the end of the pitch. As an illustration of a successful pitch, there is Cabify, a transportation company from Spain, which raised around $400 million in funding. This means that, if you do it right, you might be more than pleasantly surprised by the accumulated amount.
Chose a suitable investment type
Having a sound knowledge of your investment options is vital for the successful launch of your startup. If you opt for venture capitalists (VC), you should know that a single VC can invest up to $10 million and that they are on the lookout for fast-developing companies.
Angel investors’ contributions, on the other hand, range up to $100,000 and they are usually individuals, and not firms, as opposed to venture capitalist. Private equity firms are also an option and what’s important to know is that they purchase shares in order to have total or partial ownership of your business.
Crowdfunding might also be an interesting choice since it offers more possibilities – people can get rewards in return for small investments or part of the company’s equity for larger ones; they can act as lenders, expecting the principal as well as interest in return or they can just give donations. And if you are in need of a small peer-to-peer loan in the seed phase, you can try microlenders.
Learn from the bravest
Did you know that Panasonic, a giant in the electronics market, started back in 1918? At that time, it was known as Matsushita Electric, and it stemmed from one man’s belief in his idea and an improved light socket.
Do names Steve Wozniak and Steve Jobs ring any bells? These two college dropouts founded Apple, one of the biggest tech companies in the world. Steve Jobs established it, left it, started again from scratch and came back even stronger.
If you are having second thoughts about starting a business on your own, just remember Konosuke Matsushita, who left a steady job to pursue his dream which since has grown into a global corporation worth billions of dollars. And Steve Job’s example echoes clearly: don’t give up on your dreams!
This is a guest post by Willy Beamen, business consultant from Sydney. For more than 15 years Willy is helping small business owners and local startups to get of the ground and expand.