How to raise funding for a startup – 4 Proven Strategies
Over the years, one of the major problems faced by many of the founders I have encountered is raising funds; many potential startups are dead because they lack funding to keep them running.
Funding a startup can be painstaking, mainly when your life depends on it. However, as stupid as their ideas may be, a few are gathering the bucks. How are they doing it?
Relax. It might be your lucky day because, in this article, I will give you a blueprint for successfully raising funding for your startup.
Table of Contents
What Is Funding?
Funding is the financial support an individual, business, organization, or Initiative receives from government grants, private investors, venture capitalists, crowdfunding platforms, or personal savings to provide the necessary capital for activities such as starting or expanding a business, conducting research, developing products or services, supporting charitable causes, or pursuing educational endeavors.
Types of financing for startups
There are several types of funding, of which I would be focusing on the major ones for startups;
- Bootstrapping
- Angel Investors
- Venture Capital (VC)
- Crowdfunding
Let’s break them down one after the other;
1. Bootstrapping
Bootstrapping refers to using personal savings, credit cards, or revenue the business generates to fund its operations. This approach allows founders to maintain complete control and ownership of their company but may limit the scale or speed of growth due to limited resources.
Often, founders who bootstrap their startups are early-stage founders, probably in the idea stage, where they spend money on market research, pitch building, and consulting. This stage does not require strenuous funding for daily operations but depends on the type of idea the founder is solving.
Some startups may require acquiring licenses before operations. These kinds of startups would need a lot of capital to obtain these licenses, limiting how far they can go with self-funding a startup. They have no idea if it will work or not.
How do you bootstrap an emerging or existing startup?
Bootstrapping requires discipline, resourcefulness, and a focus on sustainable growth. Here are some steps and strategies for bootstrapping a startup;
1. Start Small
As founders, we may want to meet with competitors or start big. Instead, begin with a lean approach by focusing on your product or business’s core features or services. Avoid unnecessary expenses and overhead costs in the initial stages.
2. Use Personal Savings
In the early stages of your startup, focus on utilizing your savings. This will demonstrate your commitment to the venture and avoid taking on debt or giving up equity early on.
A few times, Investors have been very keen on your commitment, consistency, and resourcefulness before investing in your startup.
3. Minimize Expenditure
Try as much as possible to reduce expenses to sustain the operation and current and recurrent expenses for as long as you can break even.
If you’re running from your home or office, reduce electricity consumption, negotiate discounts with suppliers, and use low-cost, effective software and tools to get the job done faster and efficiently.
4. Reinvest Your Profits
Don’t get too excited after making profits; take your team members on an expensive dinner or vacation. Instead, you should invest in your startup and see possible ways to occasionally improve your quarterly revenue.
You should also explore and research untapped markets that will sustain your company in the long run against existing and emerging competitors.
I could give you many bootstrapping strategies to keep your startup running but let me stop here. To catch up on my startup nuggets, subscribe to my weekly newsletter for free.
While it may involve slower initial progress compared to funded startups, it can lead to greater control, profitability, and long-term viability for your business.
2. Angel Investors
Angel investors provide capital to startups in exchange for equity ownership. They often invest during the early stages of a company’s development and can provide funding, mentorship, and industry connections.
Founders are always very skeptical about granting individuals a percentage ownership of their company out of fear of limited decision-making and control. Still, we can’t undermine the confidence of having someone who’s probably more experienced and exposed than you.
It is one of the most common and effective raising strategies for early founders. It involves less paperwork, is faster, and is more seamless than crowdfunding, which I will highlight in the following type of fundraising.
When bringing in an angel investor, value your company and how much of a percentage you are willing to transfer. You can also get legal advice on the investor’s terms and profit sharing.
How to get Angel Investors for your startup
Focus on building solid relationships, demonstrating traction and progress, and showing investors why your startup has the potential for significant growth and returns. Here are steps to help you attract angel investors:
1. Understand the problem you’re solving
As a startup founder looking for an angel investor, you need a solid understanding of the problem you want to solve. These entail your product or service, target market, competitive landscape, revenue model, and growth potential.
2. Leverage on team building and co-founders
They say, ‘You can’t be the jack of all trades’ Yes! It would be best if you had people with whom you can communicate your vision and idea and who are willing to put in as much as you put in during the early stage of your startup. Examine your strengths and weaknesses when sourcing for your team members.
Investors are big on team building and capacity on the ability of your team members to convey the idea you’ve sold to them; no investor will throw their money into a team that’s not fit to carry on an idea to live.
Make sure you pick the best people for the job, even if it involves giving out equities and shares. If you’re tech-savvy, find someone who can handle your startup’s legal and business side. If you’re a front-end engineer, find a back-end engineer to build and run your cloud infrastructure.
3. Attend Pitching Events and Competitions
When you attend pitching events and competitions, you get to network with angel investors who may be interested in your industry. If you have a solid pitch deck, it is the fastest way to land an investment deal.
When you are around investors, be very articulate and time-conscious. Go straight to the point, and give them every reason to invest in your startup as soon as possible. In this article, I have covered tips for building valuable connections at events and conferences.
It shows you know what you’re doing. Even if you don’t get an investor during the event, know that investors are watching outside the event, so don’t be caught unawares.
4. Find Angel Investors
Research investors who have invested in similar startups in the past. You can use tools like Angel List, CrunchBase, Wefunder, or Gust. LinkedIn is also an excellent tool for finding similar connections in that industry. Send cold emails or messages, but don’t be too severe and forward, and try to build a sense of community with your audience.
Please engage in conversations and let them notice your presence in their community. Your comments and opinions may get their attention, and then you can build relationships and follow up on their interest in your startup.
Securing angel investment takes time, persistence, and a compelling value proposition.
3. Venture Capital (VC)
Venture capitalists, often known as VCs, invest more considerable funds in early-stage or growth-stage startups with a high potential for an equity stake in the company.
VCs look for startups in technology, biotech, and other innovative industries by funding and sometimes providing the necessary expertise through incubators or cohorts for team members across their network.
How to get a Venture Capital to invest in your startup
Here are steps to help you attract venture capital investment;
1. Ensure good incorporation standing
It is a critical factor for venture capital firms because of the level of corporate involvement. Many VC firms are very particular about their companies’ legal framework and corporate governance.
You must enact organizational structures, work ethics, and social involvement, especially CSR (Corporate Social Responsibilities), although this is not compulsory. It sends a message about your readiness and responsibility towards stakeholders and how the public perceives your company.
2. Understand what venture capital entails
Learn how venture capital works, including the investment criteria, funding stages, typical investment sizes, and expected returns for investors.
Please do your research and background knowledge of the firm you’re about to get involved with and hire a lawyer to interpret their terms for you to prevent what we call startup hijacking.
3. Find Suitable Venture Capital Firms
Research venture capital firms that invest in startups similar to yours in terms of industry, stage, and funding needs. Look for firms with a track record of successful investments and a portfolio that aligns with your business.
Attend industry events, networking gatherings, and startup conferences to meet venture capitalists and build relationships. Seek warm introductions from mutual connections or advisors who can vouch for your startup.
4. Crowdfunding
Crowdfunding involves raising money from many individuals or investors, often through online platforms. It involves exchanging benefits or equity for micro-investors interested in an idea or startup.
The most popular crowdfunding platform is WeFunder, although there is more you can explore as a founder. Most importantly, don’t raise what you can’t fulfill by promising investors high returns to entice them into investing.
Get your financials and projections, communicate with them, and be transparent in your pitch videos.
How to raise funding for your startup through crowdfunding
Here are steps to help you raise financing successfully through crowdfunding;
1. Choose the Right Platform
Ensure that you choose the right platform for raising funds for your startup, understand its terms and agreement, and ensure the platform aligns with your startup goals and objectives.
Popular platforms like Kickstarter, Indiegogo, GoFundMe, and Crowdcube (for equity crowdfunding) exist.
2. Set Funding Targets and a Compelling Campaign page
Before approaching any platform, you should already have a funding target. Know the exact figure you want to raise, and break down how the funds will be and what milestones or deliverables backers can expect.
3. Drive excitement on marketing and promote the campaign
Build anticipation and generate buzz for your crowdfunding campaign through pre-launch marketing efforts. Use social media, email newsletters, press releases, and outreach to influencers, bloggers, and media outlets.
Remember to promote and build a sense of community across social platforms, create content that resonates with your investors, and always let them know you’re around. You can also set up investor relations by sending monthly or quarterly newsletters.
Conclusion
I have provided four significant types of funding and instructions on how to raise funding for your startup using them. The key to successful fundraising lies in thorough preparation, effective communication, building relationships, and demonstrating your startup’s growth and return on investment potential.
If you have questions or find the article insightful, email me at brittneynickerson@qwibik.com or leave a comment below.
