What you should know about raising funds for a startup

2nd Dec 2016
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“When I was young I thought that money was the most important thing in life; now that I have grown up I know that it is. – Oscar Wilde

There are two paradoxical thoughts that prevail while making money: an idea helps you to make money, and money is needed to execute an idea. This situation certainly holds true for an entrepreneur. An idea is the only thing they have got, while the entire fundraising process might give them jitters. Fundraising is the only resort an entrepreneur has, unless they’re blessed with considerable family wealth. It is often said that the best things in life are free, but money surely isn’t one of them. Therefore, when entrepreneurs try and raise funds, they should have a strong grip on the business as a whole, the industry, their expectations from the investors, and what they might be able to promise them in return so as to get the show started.

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Although the setting up of a business involves a lot of planning and uncountable sleepless nights, to err is only human. Here are a few factors which shouldn’t be overlooked while trying to secure funding:

Realistic and convincing financials

Stakeholders and investors are certainly attracted to unique ideas, but what keeps them interested and glued is the financial detailing of the same. An appealing financial model should be inclusive of the future projections with all the number crunching involved in income statements and balance sheets. With reasonable assumptions, a projected cash flow statement might also come in handy while convincing the investors.

Type of funding and investor you are suited for

Randomly approaching investors and all the funding options might prove to be a futile exercise. Therefore, based on the stage your startup is operating at, your requirements, and your goals, there are various types of funding you can look at, namely Bootstrap, Equity Funding and Debt Funding.

 Confidence

Entrepreneurship not only involves an idea and a business plan but also comes along with a lot of fears and risks – risks of failure, losing money, and mediocrity, for instance. The only thing which should be remembered amidst all this is that people invest in people and not really the firm. If an entrepreneur is able to pitch their idea confidently and convince the investors of future returns, they might easily win the latter’s support. On the contrary, an entrepreneur with a brilliant idea but little surety is less likely to do so. The pitch shouldn’t just ooze out need but should help arrive at a win-win situation for both parties.

Alternate ways of fundraising

Sequential meetings are a conventional and tiresome way of raising the funds. Young entrepreneurs should also try and explore the other alternate sources of fundraising. These could include crowdfunding, approaching university incubation centers (IIIT Hyderabad, ISB, IIM Bangalore, IIT Kharagpur, etc.), business plan competitions, and supporting campaigns by big brands and government schemes.

Strategic fundraising with well-defined future plans and goals

Fundraising isn’t just about acquiring money for the present requirements of your firm. Rather, it includes, and is based on, considerable future planning, like the cost of acquiring a customer, scalability of the business, defined milestones for measuring the progress, and finally, a list of all the activities and results where the funds are being diverted. A proper action plan always seems to be more convincing than just the idea or a business plan.

Since it is someone else’s hard-earned money that we are talking about while procuring funds for the organisation, not only is the present situation considered but past records (prototype) and future milestones are also accounted for. Hence, it wouldn’t be wrong to say that unless the entire process is supervised by the entrepreneur himself, the firm can’t really succeed even after the funds pour in.

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