Startups need a steady flow of funds to turn their ideas into reality. Failure to raise enough funds can hinder your innovations from reaching the market at all. Hence, it is important to be aware of the various funding challenges for startups to overcome them.
According to the 2020 Global Startup Outlook, 41% of startups say it is getting harder to raise funding in today’s economic climate. Moreover, only 11% were actually successful in hitting their target in the last year. Nonetheless, it is not an altogether impossible feat. You simply need the right tools, knowledge, and strategy to bring in the right funding for your business.
With that, here are some things you need to consider on how to raise funds for a business start-up.
1. Create a scalable business model
When seeking funds, you have to convince investors that your ideas are solid investments. The first step to do that is to create a scalable or ready-to-scale business model. Often, investors would want to put their money on a business that has the potential to expand. You need to show them that your business can increase revenue with minimal expenditure in the next months or years.
Having a scalable business model can yield high-profit margins despite lower infrastructure and marketing investment. Most importantly, it allows you to grow without overextending your time, money, and resources in the process. You can check out these interesting niche marketplace models for startups to give you an idea of what to look out for.
2. Determine how much money to ask for
Having a target in mind can help steer your efforts in the right direction and create a smarter capital-raising strategy. Whether you ask for funds from an angel investor or a bank loan, you must know how much money your business needs. You need to outline a business plan to demonstrate how you are going to spend the money. This will also give you a realistic financial forecast on the potential return on investments (ROIs).
You can impress investors by showcasing a specific and concrete business plan on their investment. This means listing down measurable and achievable milestones over time. Moreover, you also have to calculate how much money you need for the production, hiring, training, and marketing within your startup. This allows you to figure out your general cash flow and adjust your operations accordingly.
Keep in mind, however, that more investment isn’t always better. It can force you to scale up your business prematurely, which further leads to failure.
3. Raising money can get costly
Startup owners tend to go overboard when raising funds for their business. As a result, they grossly underestimate the time, effort, and resources required to hit their target. This can even lead to more loss than profit if left unchecked. After all, the funding process can drag on for months. During that time, you might end up having more cash flowing out than in.
Hence, you must put a limit on where and how you get your funds. Having a target reminds you of your real goal to get your products out to the market. Likewise, you must also determine which types of funding for startups would be most suitable for you. Should you bootstrap, crowdfund, or raise capital?
4. Bootstrap your business startup
One of the easiest ways to raise capital for a company is to bootstrap or self-fund. This is where you use your own resources and savings to invest in your startup. You can also ask your friends or family to contribute as well. Compared to other sources, this tends to be faster and more effective since you have fewer compliances and formalities to undergo. Moreover, it gives you greater control over your startup’s agenda and goals.
However, bootstrapping can slow down your business growth. Since the money only comes from you and your family/friends, you won’t get as many networking opportunities or resources. This can limit your access to your desired market and reduce your visibility and credibility to your target customers.
5. Turn to venture capital
According to KPMG, global venture capital investments remain robust despite tough times. Just last year, it reached $62.9 billion on 4,502 deals all around the world. This makes venture capital the most viable fundraising source for startup businesses. However, venture capital tends to be more appropriate for companies that are already generating revenues. So if you already passed the startup phase, this can be your next step.
Venture capital can come from different sources. There are private investors, investment banks, and any other financial constitutions willing to help out startup companies that show potential. Moreover, they can provide you with additional resources that can contribute to your company’s growth. This can be in the form of technical and managerial expertise or mentorship programs.
6. Take advantage of crowdfunding
Recently, crowdfunding is gaining momentum as more business owners turn to online marketing. The increase in engaged user base allows them to raise funds by using an interactive social platform. A great example of this is the website Kickstarter that enables individuals to set up their own “fund me” over the internet.
Startup entrepreneurs can take advantage of this trend and raise their funding through crowdfunding. And with the help of various social media channels, you can easily reach out to more audiences and tell them your story. You can also offer meaningful rewards to those who would donate in the form of freebies, early users, and deals. You’ll be surprised how some startups were able to raise millions from crowdfunding campaigns.
7. Choose the right partners
While your ultimate goal is to raise funds for your startup, you should also keep in mind that the search is more than just the money. You are also looking for potential long-term partners for your company. Hence, you need to consider whether an investor has experience in the industry you plan to get into and contacts with suppliers or customers. But most importantly, they must also have a good reputation.
There are other ways your partners can help your startup grow. For example, Arcadier helps startup entrepreneurs create their own online marketplace. They support various types of models, giving you the flexibility you need to scale up your startup any time. With it, you can also plug in shopping cart software functionalities for businesses.
Just the start
You might think that your work is done upon reaching the target fund for your startup. However, this is only just the beginning. You still need to maintain a steady flow of cash to sustain your company. Moreover, if you want to continue scaling up, you need to keep up with your efforts to raise funding for your business. This means holding continuous negotiations with investors, banks, and partners along the way.
Running a startup business is not easy. You will encounter various funding challenges along the way. Nonetheless, the right knowledge and strategy can bring you a long way. So go ahead and explore what other options you can take to fund your startup. Find out which sources would work best for you. Moreover, take advantage of the various technologies and solutions you can use to scale up your startup business.