By Eric Tolic, a serial entrepreneur and growth marketer.
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You’ve probably heard this mantra before: “Money does not solve all your problems.”
In the case of startups, it’s true more often than not. Unfortunately, we live in a society that praises the ability to attract investment, often with complete disregard for the underlying business. While obtaining capital is no easy feat, it should never be seen as the end, but rather a means to the end.
The Entrepreneur’s Perspective
Despite the fact that fundraising is commonly portrayed solely as a beneficial endeavor, in reality, that is not the case. Before we take a look at the various steps involved in getting a startup backed, let’s first establish the pros and cons of raising capital as a founder.
Pros
• It enhances the credibility of your company.
• It offers increased financial resources to cover expenses.
• It provides access to deep networks and industry connections.
Cons
• You will be subject to ownership dilution.
• You might have reduced control over your operations.
• You could have added pressure to hit targets and deadlines.
Without a thorough analysis of the many repercussions associated with bringing on investors, over the long term, you could end up with regret. To avoid this, it’s pivotal that you as an entrepreneur have awareness of the sacrifices you are making in exchange for money.
What Is Required To Secure Funding
Now that you understand how raising capital is often important in the development of a company, we can take a look at what is necessary to obtain financial resources. Whether you’re seeking funding from angel investors or venture capitalists, it’s essential to have a strategy in place to successfully navigate the process.
Here are some key steps to follow as you work to raise capital for your startup.
1. Develop a business plan.
Before you start fundraising, it’s crucial that you have a clear idea of what your company does, what it needs capital for and how it will generate revenue. This means you should create a detailed plan that outlines your objectives, target market, competitive landscape and financial projections.
2. Determine what you need.
In order to raise capital, you must thoroughly understand how much funding is necessary to achieve your business goals. Be sure to consider all costs associated with launching and growing your startup, including salaries, rent and marketing, as well as any other expenses you’re likely to incur.
3. Identify potential investors.
As a first-time founder, it’s imperative to note that not all investors are potential candidates for your company. In fact, many angels and VCs have preferences with regard to the industries in which they entertain opportunities. Therefore, when deciding who to pitch, always do your homework.
4. Network and make connections.
Building relationships with industry professionals is a key part of the fundraising process. Some of the ways to connect with the right people include attending events, joining relevant organizations and using social media. By doing so, you can increase the odds of landing an investment.
5. Practice your pitch.
When approaching investors, it’s of utmost importance that you relay information in a clear, concise and compelling manner. As you develop your pitch, consider seeking guidance from a mentor given these individuals can help eliminate ambiguity around various aspects of your business.
6. Prepare for due diligence.
Should you attract interest, the investor at hand will typically conduct a more thorough assessment of your company to ensure it is indeed a viable investment. Be prepared to provide any documentation they request, including records such as licenses, trademarks, patents, contracts and more.
7. Negotiate the terms.
Once you’ve secured an offer, it’s now time to review the provisions of the agreement. At this stage, entrepreneurs usually hire a lawyer for advice on the best route forward. It is often beneficial to have multiple term sheets, as it incites competition and allows for greater leverage in negotiations.
In conclusion, raising capital for a startup can be a challenging and time-consuming process. However, by following the steps above and being well-prepared, you can increase the likelihood of success in acquiring the funding you need.
