Here’s a plausible scenario: you and your best friend got together and co-founded a disruptive new startup in your parent’s garage. Steve Jobs started off in a similar fashion and he made it. So your chances are good. Soon though you realize that bootstrapping can only take you so far. A day will come when you’ll find yourself in a room with an investor. It could be an angel investor or a VC, and you’ll need their money to take your startup to the big leagues.
As an innovative entrepreneur, it’s quite likely that you have a good education, a strong background in tech, and maybe even good people skills. You may have stumbled onto the next big thing. A battery that would keep your iPhone powered up for the best part of a year, a software tweak that could double the fuel economy of the average car or maybe even a new data transfer protocol that could transfer 100 GB a second. Your onto a big hit and it’s in the bag. Unfortunately, that’s not the necessarily the case. If you don’t get money and get it at the right moment it’s all going to come tumbling down.
It is critical that you get your fundraising strategy right. So what do you need to do in order to avoid the mistakes made by amateurs? We share a few key tips you should consider when raising money for your startup.
Set a goal
Sounds simple, but you need to set yourself a goal and decide how and when you are going to reach it. This goal could be reaching 100,000 active users, signing a contract with your first client, launching your app on the app store. Once you set yourself this goal, try and figure out how you are going to achieve it and when. The big issue is connecting this goal to your finances. How much money are you going to need once you reach this goal? Add about 20% to the number you come up with and do everything you can in order to make sure you have the money ready to go once you hit your goal. If you have 100,000 users but your startup is so broke you can’t afford to make any changes or updates, you’re going to fail.
Set a second goal
Did you reach your previous goal? Did you raise funds? If you did, your already ahead of most startups. Now it’s time to set another goal and raise even more money. It’s a repetitive process, only this time you have something to show for yourself. You reached your previous goal and you already got some funding in the past. So now you and your startup have a reputation. Once you achieve your second goal, set a third goal, then a fourth and a fifth.
Don’t plan too far ahead
You may think that it’s best to have a roadmap, setting out each and every stage of your startup. This can be a problem though. The startup world is a dynamic world. You may start off with one product and it could eventually adapt into something else altogether. So there isn’t any point in wasting time thinking about what exactly your product is going to look like 10 years down the line. The same principal is true for funding. Many startups try to plan ahead and get all the necessary funding on day one. This is a recipe for disaster. Unless you found a way of turning salt water in gasoline, chances are no one is going to give you all your funding on day one. Most investors won’t take big risks, and would rather fund you in stages, as the product comes along. So think and plan ahead, but not too far ahead.
One last thing
As we mentioned, timing is everything, try and get investments too soon and people will turn you down. Try and get investments too late in the game and you’ll run out of money and shut down. Timing is everything, and finding the right investors take time. Usually, even if all the stars align for you, you’d still be looking at 3 months in the best-case scenario. So make sure to actively begin scouting for potential investors far in advance. Networking is key, so attend as many conferences and meet-ups as possible. Don’t ask for the funding until you reach your goal, but definitely have things set up, so that once your goal is achieved you can get the ball rolling.
Feature image: 401(K) 2012