From capturing the interests of investors to pursuing venture capitalists, funding will bolster you from a young startup to a full-fledged enterprise. But when success stories emerge from garage labs and makeshift basement offices or when ideas evolve on tight budgets and are sold for millions later, the question every entrepreneur must ask themselves is whether their business really needs funding, or more pertinently, whether funding is required immediately. Before you seek out an investor, watch out for these signs:
Image : shutterstock
You need to have a solid business plan down in writing to show what you intend to achieve and how investors will benefit from your business. Moreover, you need to invite the right investor – someone who shares your passion and sees potential in your vision. It matters more who invests in your idea rather than how much is invested towards your idea.
Ask yourself: What is my aim/end goal? How will I run the business? How will I manage the finances and, in turn, grow my business?
The question to ask here is: how much funding do you not need? Put together a spending plan to analyse how every rupee invested will be spent. Identify what you can do differently. Are there cheaper alternatives, for example, to the software you require? Can you spend time building a tool that will address your business needs? This forensic analysis will not only help prune the frills from your list but also help you understand how much you actually require to achieve your vision, which brings us to our next point.
It is important to understand why you’re doing what you’re doing. Most entrepreneurs get lost in the demands of the moment and often lose sight of their short-term, mid-term or long-term vision. Your vision needs to dictate the pace of your business and its requirements at any juncture. A little bit of introspection and planning will help you understand what the actual needs of the business are at any given time, keeping in mind your mid-to-long term goals. This may, in turn, reveal if you need to step up the pace by fundraising or if you still need to grow your business through efficient bootstrapping.
Once your business plan is in place, map out multiple ways to achieve your goal in one-three-five years’ time. While one option may or may not work, it pays to have other channels and pathways to reach the same goal. If the scale of your vision could benefit from funding, your backup plans also give you more leverage when you speak to an investor.
It’s key that you understand where you are on your path towards the finish line. Where you are in the timeline is also a good indicator of whether you need the funding. If you’ve just started out, for example, don’t be too quick to raise money, especially when bootstrapping is an equally viable option. Keep in mind that the sooner you sell equity, the sooner you lose leverage, and your vision will no longer be just yours.
There is no point in raising funds for a product which isn’t market-ready. The time spent in fundraising should be used in innovation and improvising the product or service through beta-tests and customer interaction. First, understand what makes your product click, or not click. If the business has been prematurely scaled without a proper understanding of what the customer truly wants or needs, the business will fail to take off – with or without the funding.
Do you identify with any of these signs? If so, then it’s probably best that you put off that funding for a later time.