Creating a successful business requires a good idea combined with skill, talent, and ambition. But even if you have all of those elements, you may end up falling short if you can’t raise the capital that you need to move forward.
No entrepreneur wants to think about raising funds. It is hard to ask people for money, and even harder to be rejected. But when you’re trying to turn a dream into a reality, having a plan for how you’re going to raise capital for your startup is just as important as having a great product or service to offer. To make sure you’re fully prepared and put yourself in the best possible position to achieve your goals, you must take time to learn the basics of raising capital. The information below will be a good starting point.
See Relax Tax’s Debt Guide at relaxtax.com/debt
Do your homework
Before you begin to investigate how funding works, you need to be completely cognizant of every element of your business. Not only will this preparation help you to answer questions with confidence, it will also make you aware of any shortcomings that you can address prior to seeking investment. No funder wants to put their money into a startup that has not been thoroughly vetted for its potential, and it is your responsibility to ensure that you’ve done all of the research into competitors, the marketplace, and the health of the industry in general. You also want to show that you care enough to have projections in hand and a considered estimate of exactly how much you need to accomplish your goals.
The more clear-cut your plans and the more specific and well-documented your answers, the more confidence you will inspire. Make sure you put in the time and effort needed. You will not only feel more secure as you make the ask but will also be more likely to get what you want.
Understand who your potential investors are
Just as there are many different types of investment opportunities, there are many different types of investors. The more you understand who your potential investors are and the different ways of approaching investment, the more you will understand about who to go to initially, and who to turn to afterwards if your initial attempts at raising capital fall flat.
There are several different types of potential investors for startups, including:
- Family and friends
- Venture capitalists
- Angel investors
- Single family offices
- Business incubators
- Investment groups
Not all potential investors are right for your business. Some are likely to want to exert more control, some may end up costing you too much in the long run. You may even want to consider going with a simple bank loan instead of involving outsiders. The decision is entirely yours, but make sure that you understand the advantages and disadvantages of each and how they will impact you in the long and short term before moving forward.
Be ready for your ‘close up’
When it comes to asking investors for money, the importance of a well-prepared pitch deck cannot be overstated. It is the single-most important tool you have to tell your story and justify your ask, and it is completely within your control. You need to make sure that every page is assembled with your audience in mind: After all, you are not trying to convince yourself about the worth of your business idea, you are trying to convince somebody else, so you need to emphasize their goals at least as much as yours.
That being said, there are certain fundamentals that must be included without going into so much detail that you overwhelm. Try to limit your presentation to no more than 15 slides that encompass the essentials on the company. Include a summary of the market and the competition, your goals and your team, your plans for the future and what you need to move forward. These are the who’s, what’s, why’s, when’s and how’s that investors need to make their decision.
Knowing where to find potential investors
One of the most important things that you can do when you’re in the run-up to starting a new business is to make sure you have a lot of contacts. The more people you know and impress, the better, as they will be able to help you once you’re ready.
Keep in mind that there are many ways to impress people, and the most effective is often by helping them. Making yourself invaluable is also a way to inspire people to want to return the favor. That doesn’t mean that they are necessarily going to want to put their money into your business. Not everybody is an investor, and even those who are looking for an opportunity may not feel that your business is right for them. Learn to take rejection gracefully, and to understand that a “no” is not personal.
See this related post Dennis Harabin: The Importance of Estimating Start-Up Costs Before Launching A New Business
According to one recent study, start-ups created over two million jobs in the United States in 2015 alone. In fact, by 2018, there were 30.2 million such organizations operating in the country — making up a significant part of the economy. But having an idea for a product or service and bringing that vision into reality are often two different things. It's one thing to come up with something innovative — it's another thing entirely to avoid the trials and tribulations that the business side of the equation often brings with it.
Identify specialized investors
Just as some investors are not going to see your business as the right fit for them, there are some for whom you will be exactly the right fit, especially if you are in a specialty business that has proven successful for others. Many investors opt for niche investments, so do your homework and seek out capital from those who have invested similarly — and successfully — in the past.
The last word
Finding capital is not easy, so try not to get too discouraged if you don’t find your efforts are immediately successful. Being prepared is a big part of the battle, but so is timing and the understanding that there will be obstacles along the way. As long as you do your part and remain optimistic and diligent you are putting yourself on the right path.
To discuss your funding options and set your business up for financial success, contact our office at 551-249-1040.
Do you need more information? You can reach out to Dennis Harabin at Relax Tax today!
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