how to raise funds for startup
Hope you had a great time reading our previous blog “Best Industries to Start a Business in 2020”. And right now you must be having something in your mind. Something directs to ‘A Business Idea’. If you are firm on your startup idea, then you must be thinking about the next step which is initiating your business.
Starting a business of Home and Building Maintenance, Pet Care, Ethnic Supermarket, Winery Industry, Elderly Healthcare Services, Holiday Rentals, Car Wash, Waste Collection/Removal and Laundry Service with Mobile app or Website is a multi-step process and there are several factors that must be considered during each of these steps. The most essential and concerned factor is money; which is a lifeblood of a successful startup. A well-established startup requires powerful financial source and acquiring these sources is the main challenge for you which is somehow hard to achieve.

While thinking about fundraising, you should encounter certain questions like:

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    Which are the sources to get funding for my business?

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    What is the Exact Process for Fundraising?

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    What is the difference between all these sources?

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    Which are the Funding Types?

In this article, we will be further helping you to get answers to all these questions and to know how to raise startup capital for small business.

Before that Check Out Some Important Statistics Regarding Startup Fundraising and Finance

  • About 77 % of small businesses depend on individual savings for their early funds.
  • The majority of startup funds i.e about 82 % came from the entrepreneur himself or herself, or from friends and family.
  • 82 % of startups fail due to cash flow problems.
  • About 27% of businesses weren’t able to get the funding they required.

What are the sources to get funding?

Well, this is the first question that should strike in your mind. There are several ways you could get funds from; they may be your friends, family, other individuals or maybe you yourself. Bootstrapping which is self-funding and Crowdfunding are the two best and popular ways of funding.

Apart from these sources, there are some professional investors and firms that look for invest in startups, mobile app ideas, small businesses, well-established firms, and organizations to get something in returns i.e ROI.

These investors are listed as Strategic Investors, Angel Investors and Venture Capitalists which are leading sources to get startup capital for businesses.

What’s the Difference between Bootstrapping, Crowd funding, Angel Investors, Strategic Investor, and Venture Capitalists?

  • Bootstrapping

    It is an effective investment method where you can invest from your personal savings or can ask your family and friends to contribute. This is a much easy approach since there will be less formalities/compliance.

  • Crowd funding

    It is like getting a loan, contribution, pre-order, or investments from more than one person at the same time. It is a competitive place to earn funding, so unless your business is completely rock solid, you may not find it useful.

  • Business Angel Investors

    Business Angel Investors are successful business people or the individuals who invest their own personal funds into a potentially rewarding business opportunity. Angel investors usually do not have deep pockets thus their average investment is supposed to be smaller than that of a VC.

  • Venture Capitalists

    Venture Capitalists  are the firms or companies that invest funds gathered through others investments. Venture Capitalists invest in the business still after knowing the considerable risk associated with future cash flow and profit of the company.

  • Strategic investors

    Strategic investors could be the customer, vendor or other business partners with whom you’re presently working and may be interested to invest in business startups. A strategic investor has deeper pockets than an angel investor, and generally has a particular reason to invest in business startups.

Now you have the list of different sources and as per your new business startup plan you need to decide from which type of source you will acquire enough funding.
At this moment, the question is  how to acquire funding from these sources?

Check out following steps to know the exact process of  fundraising ideas.

Effective Steps or Ways to Raise Funds for Business

01

Make a Business Plan

How to Write a Business Plan for Raising Venture Capital
The first thing to consider while preparing for funding is writing a business plan, which will be submitted to the investors.  Before writing your business plan, try to dig up your business idea and find out the problem on which you are providing the solution and a unique feature that distinguishes your business. Using this feature you can create a Unique Selling Point that will be used in your business plan and Elevator Speech as well.

In general, your business plan should include following terms:

  • Business Description

  • Organization and Management

  • Funding Request

  • Market Analysis

  • Service or Product Line

  • Detailed financial projections

02

Develop a Prototype

how to develop a prototype to raise capital
Once you have defined your business plan and USP, try to build a prototype for it. It is not necessary that the prototype has to be completed product sample. You can also use the unique feature which you have concluded previously.

You can utilize this feature as a prototype in diverse ways:

  • PowerPoint

  • Photoshop

  • Drawing it on a paper

  • Animated video

03

Analyze the Prototype from Customer Viewpoint

how Analyze the Prototype from Customer Viewpoint
Once you have your prototype, try to check it out from others perspectives, to get their option about it. In others mainly focus on your potential customers, explain the prototype to them and have their perspectives.

Throughout this analysis, you will be able to

  • Record the customer experience

  • Take a good proportionate and a representative sample

  • Develop a market research report

  • Identify the reasons why your prospective customers should use your product or services

04

Prepare a Functional Prototype

how to prepare a functional prototype to raise funds
This could be a most difficult step in the entire process of fundraising, since transforming your pictorial prototype to a functional one, requires additional efforts and others help. Here as well it not necessary to develop a complete product rather you can develop the one unique feature of your startup idea.

While developing a functional prototype you must consider following points:

  • Seek help or support from others like your friends, friends-of-friends, or anyone.

  • If different people could help you, then you need to protect the ‘Intellectual Property’

  • You could also go for the signing of a ‘Non-Disclosure Agreement’ between yourself and the developers.

05

Customer Acquisition

Customer Acquisition Strategies to Win New Customers
After completing your functional prototype, your next effort should be to acquire enough customers to put an impact on the investor. This is another difficult step in your fundraising journey. This step will surely challenge you ‘physically, mentally, and monetary wise’ so be geared up for it.

Follow the below-mentioned steps supporting your efforts in customer acquisition:

  • Use of all the available weapons to spread your business around the world as much as you can.

  • Send out emails from ‘Facebook to Twitter and other social media

  • Write blogs to newspaper articles

  • However, even after all this, if you fail to acquire a good number of customers, go back to the first step

  • 'Re-evaluate, re-define, re-engineer, and re-start'

06

Monetizing Strategies

monetization strategies to raise funds
If your unique feature is capable of attracting customers then you are now sure that, your Startup idea is all set to become a business and can think of ‘preparing a business model’ around your feature. This means discovering ways to make income from your idea. At this stage, you could obtain some funds that would allow you to move on to the next step.

While preparing your Monetizing strategies you need to consider following points:

  • Identify your ‘primary, secondary, and tertiary stakeholders

  • It becomes essential to account stakeholders in developing Monetizing strategies

  • Look at different parameters and negotiate your way through various obstacles

07

Scale Your Product/Services

Strategies To Scale Your Service Business Profitably
Up till now, from the previous steps, you will have cash coming into your bank account. Now, it’s time to spread your wings and move beyond boundaries. This means you need to expand more, which will require you to ‘scale up’ your product or services accommodate bigger usage. At this stage, you will be all ready to approach your particular investors.

By this stage, you will be having answers to certain questions of investors like:

  • How much money do you need?

  • For what, where it has to be spent?

  • What would be the ROI of it?

  • However, even after all this, if you fail to acquire a good number of customers, go back to the first step

  • 'Re-evaluate, re-define, re-engineer, and re-start'

08

Create an Elevator Pitch

how to create an elevator pitch to raise money
The investors not only invest in your idea but you need to prove them that they could trust your team and you with their money, ‘business model or the monetizing strategy’. For this, you must have to prepare an effective elevator pitch. An elevator pitch is the means to deliver the entire business idea to the targeted investors so as to convince and attract them to invest in your business. Remember that, the more effective your elevator pitch is more are the chances to acquire funds.

For this, you need to create a straightforward presentation that will describe

  • Exact Purpose of Your Business

  • Your Identity and Requirements

  • Unique Selling Point

  • Benefits for Investors

  • ‘Market research’ results

  • Highlighted numbers coming out of the ‘traction levels’, ‘market size’

  • Where you ‘fit’ in the market

09

Finding the ‘Money’

After developing a complete pitch, it’s time to discover investors. As per your business requirements, you can start your search for an appropriate investor. Implement each possible way to grab investor’s attention. Of course, Google can help you in this as well. Further, there are websites & apps that are specialized for investor’s information; National Venture Capital Association is one such a website which is a wealth of investor’s information. Another one is thefunded.com that will give you both reviews and comments from entrepreneurs who have got funding from various investors.

To find out the precise investor you can also use following approaches:

  • Using local ‘Angel network’

  • Through ‘LinkedIn’

  • Approaching the local ‘University incubation center’

  • Joining any ‘accelerator program’

  • ‘Personal contact’

10

Delivering the pitch

how to deliver the perfect pitch to raise money
This is the stage when you will be in front of the investors and have to deliver your elevator pitch. At this stage, you would expect the investors to trust you, for that you will need to ensure that your pitch is impactful and impressive.

While delivering the pitch you will have to consider certain points:

  • Try to showcase your thoroughness, sharpness, intelligence, and diligence

  • Prove them that you are someone they could trust.

  • They don’t expect you to know everything

  • Be clear about what you want

  • Be specific about what you are offering in return

  • Be prepared to answer any kind question

11

Refine your product

checklist to Refine your products
Constantly refining the product is also necessary while searching the potential investors.  By doing so you are raising the chances to attract investors. If you are at the well-going stage of your business then this is the must-have next step for you to raise funds for your business.

To find out the precise investor you can also use following approaches:

  • Carefully approach a select few target VC firms or Other Investors only one at a time

  • Have a business plan ready before you finish the pitch

  • Expect the process to take longer than you think it will

  • Joining any ‘accelerator program’

  • ‘Personal contact’

These are essential steps that you must have to follow to acquire the potential investors and raise the funds. 

No doubt you are about to initiate your business thus you will require the finance at the beginning stage. Still, you need to be aware of some other funding types that will be helpful at later stages of your business.

What are the Funding Types?

In accordance with your business stages the funding is categorized in the series of A, B, C and D.

  • Investing at the initial stage of your business referred as series A funding.

  • Followed by this funding there is a Series B, C, and D round that tends to invest in middle or later stages of business.

Further, The Funding Concept Is Broadly Classified As:

  • Seed Capital for Startups

    The capital invested by your VCs or business angels in this type could be used to produce a sample product and fund market research. You would be seeking a seed capital for start-ups if you’re just beginning and have no product or organized company yet.

  • Startup capital for Small Business

    The funding got at this stage could be used for additional market research, the product or service finalization for an opening to the marketplace, and further recruitment of other key management.

  • Early Stage Capital Funding

    After a complete and well settlement of your business, if you are looking for new opportunities to improve company’s efficiency and productivity then VC funding could help you at this stage.

  • Expansion capital Funding

    Investment at this stage might help you to increase your marketing efforts and enter new markets and you must look out VCs that specialize in investing at this stage.

  • Late Stage Capital Funding

    When you are ready for the second level of management, after achieving impressive sales and revenue you will need this level funding.

    Since you are about to begin working out your business idea, first two-stage funding are the most preferable for you.

At this moment you are having enough knowledge of fundraising ideas and can prepare yourself to proceed on your idea. Still, there are chances you have to face adversary and rejections. Remember, every time you get rejected you have to dust it off and start all over again, since every entrepreneur has faced rejections. You must treat every rejection as a learning lesson.

There are certain tricks, methods and strategies to precede your startup towards a success and to sustain it. And this is the next step you have to go through. To help you out in this trouble, we will be back with our next blog “How to Make Your Startup Survive in the Competition”.

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Nital Sagar

Author: Nital Sagar

A passionate writer who loves narrating latest technology and entertainment industry stories to her audience. Nital is a passionate blogger who as a writer believes, accurate words speak louder than simple actions.