If starting a new business is a huge task, funding a new business venture is another big task because funds become everything to run and operate a business. Funding a startup often demands more capital than the founder can pool in through personal saving and assets. Funding raised from investors gives the business the capital to operate, research and development and technological advancements. But raising capital is not an easy task, there are two major challenges like finding the right investor and making them invest in the business.
There are many startups who are interested in meeting and pitching in the venture capitalists and angel investors and thereby making their availability difficult. This whole area is very competitive and requires a well-organized project with defined distribution channels and proper networking. Raising funds externally requires a significant amount of focus, hard work and perseverance. The whole process of fund raising requires certain steps to ensure the whole process is channelized. They are:
*Step 1- Calculate your need:
Much ahead of starting to look out for investors, you should be able to know how much funds are needed. Calculating the amount needed for the startup requires careful planning and research which has to be started much ahead. Looking out for funds just to operate, develop the first product line and rent a building is extremely risky. Ensure the amount you seek is enough to get through the major development stages of the company where you expect to generate revenues to cover the costs. There are some formulas considering the host of variables which can be used to calculate the amount needed to be raised outside.
*Step 2 – Business Plan:
A clear business plan is required that depicts how your business is unique when compared with that of the other competing businesses in the market. Investors would be interested in seeing what makes its different and special and why the team that you have formed is perfect for the job. The business plan should contain the details of the company, current market and industry analysis, target customers, sales and marketing strategy and the milestone achieved so far. The business plan should end with the financial projecting not only revenues but an exit strategy for the investors (how the investors can get their money back with earnings). The business plans acts as the face of the company to an investors who knows nothing about you or the business so it has to be prepared with lot of care. Also, ensure to put in how you plan to spend the money, Investors are not simply writing out checks with no idea of where the money will be spent.
*Step 3 – Network:
When it comes to business, it is critical to establish network and get acquainted with many other businesses and people. It is wise to network with established entrepreneurs at the local chamber of commerce; interacting with seasoned and experienced business people can often simplify the task of finding the right partner or investor. Do not hesitate to mingle assertively at chamber meetings and functions, pass out business cards and pitch your idea to professionals with experience in the industry. This will help you in gaining exposure and make contacts that may prove to be beneficial in the future.
*Step 4 – Banks:
After a bit of networking it is wise to meet bankers, investment advisers and accountants. Explain your business and what you are doing. If impressed with your business plan they may be ready to offer loans or they may put you through to other clients who may be interested in investing in the business. One should understand that allowing investors to invested in the company means giving up a portion of equity of the company major or minor but when it comes to bank, it is only a loan which has to be repaid in monthly installments. However, banks expects assets or properties as a mortgage.
*Step 5 – Building AngelList and Identify Investors:
AngelList is a reliable way to both learn about investors and let them learn about you. So create a file that consists of specific info about your company, product and team members that simplifies the task for people who are interested in your company to find you. The filled AngelList can be shared with your friends and professional acquaintances and request references. Knowing who are following you would be an extra advantage for you can who is interested in your work
Through those means identify angel investors and venture capitalist and also through Small Business Association functions, industry events and online research. Professional investors and venture capitalists are often quite specific about the vertical in which they invest based on the personal experience and expertise like technology, medical and services. When not sure about the investors, fellow entrepreneurs can be contacted. Fellow entrepreneurs are an invaluable resource for helping you identify potentially interested investors who are not yet on the radar and also to get reviews about the investors who they have come across.
*Step 6- Meet Investors:
Once the potential investors are identified and shortlisted, next task is to meet them and pitch in to them. It is wise to ask the potential investors regarding the parameters they have set for the capital investments. If you meet their criteria, then nothing like it. Be ready to present your idea and business plan and do everything to woo the investor. Be ready to mean at least 20 to 30 investors before one is ready to invest and do not get dejected in case of rejection. It is quite common to happen. If you do not hear from them after a week, do not hesitate to follow up. Sometime, if the investors are impressed with your plan but not in a position to invest, they may refer you to other investors who may be interested. For that you have to be a pro, have a good plan in hand and demonstrate an understanding of the investing process.
*Step 7 – Strategic Alliance:
Develop good relationship with the successful entrepreneurs in the same field as yours. It can reap a lot of benefits. For instance, Sun Microsystems co-founder Andy Bechtolsheim invested $100,000 into Google before the company was officially incorporates, according to CNN Money, “How to Find Your Angel Investor.” Building such good relationship with competitors can help the startups become strategic alliances, mentors and possible investors. Even if not investors, they can become strategic alliances and corporate mentors who could strengthen the status of your business with prospective investors. When you say you have a good relationship with a big company, it add value to your company.
*Step 8 – Be the reason for the investor to reach you:
Just like how the startups are on a lookout for investors, investors on the other hand are also on a look out to find great companies. So it is important to ensure to invest in some time to put yourself out there. If it the products have not reached the market or gone live, you can still gain attention for your team and your mission through though leadership. There are many blogs who are eager to write about you or you can write one yourself. Such blog can reach investors and if they find it interesting they would come looking for you.