How To Get Working Capital For Your Company
You want to start a business, but getting initial funding is a difficult process. There are always easier and faster ways to get money. Just too many variables in the form of red tape, regulations, and bureaucracy...and who has the time or patience for that?
Many founders of companies who have wanted to put their ideas into motion have turned to "the silent investor", using their own personal funds or taking on debt in order instead.
But what if you don't have any savings? What if you aren't very wealthy? This post will share five easy steps on how you can find capital for your company without having too much work. By outlining a few key commonalities in the world of venture capital and private equity, there are some definite pathways that you can follow to get money for your business.
The number of people who have started their own businesses and succeeded is too large to count. Move beyond your idea and translate it into a plan they will want to invest in. If you can achieve this, you'll be on the right track.
Let's begin: 1) Do some research: One of the best ways to find out about venture capital is by doing some research with a team of experts (read more about whether to use an intermediary or not here ). Many venture capital firms have a small research team to help investors and entrepreneurs connect.
For example, an agent who works at one of the largest VC firms in the United States, often spends her day talking with start-ups that are going through fundraising. She knows what companies are in trouble, which ones will likely succeed, where they can be acquired and more.
If you don't want to use an intermediary, you can also take a look at a company database like CB Insights , which has over eight million investment and corporate documents. Just enter your address and you will receive business information on thousands of companies in your community. Another option is to consider making a request for proposals (RFP) on AngelList . The RFP process can be a great way to get information from different companies.
2) Do Your Homework: Once you have identified the venture capital fund that is interested in your business, do some research about them. The next step is to check out the reputation of the particular venture capital firm by listening to their website, talking with their people, or looking at their social media activity.
Make sure you do your homework on due diligence so that you don't waste your time and energy on someone who isn't looking for what you are offering. There are several websites that provide online research tools - including name and background checks - allowing you to easily access information about potential partners.
Do some comparison shopping. Many times, entrepreneurs will get excited about the prospect of partnering with one venture capital firm, but then get scared when they see that other firms are offering the same type of partnership for the same deal.
Consider a few variables to help narrow down your search:
How many investments does their fund have? How much is the average deal size? How many investments is their company done per year? What has their track record been like? Is there a history of exits or failures (i.e. company sold to another company, strategic partners or acqui-hires)?
3) Learn About the Industry You're In: There are several factors that determine how much money is available in a particular industry. For example, if you are managing a leading automotive parts supplier and the space is growing exponentially, you could raise $1 million within a few months of starting. If you are developing software for the space logistics and shipping industry like e-commerce, chat bots or even hyper-local delivery robots then it might be hard to raise money because investors want to know where they can expect to get their returns.
Here is some more background on this from TechBoard: The Loan Officer's Guide To Equity Investments .
4) Talk to Investors: Once you have determined what type of industry you want to be in, set up a meeting with investors within the finance or tech sector.
They can talk about your ideas directly with key decision-makers and their teams, allowing you to update them on your progress regularly. VCs keep track of all the startups they meet with and look for interesting opportunities - and then they come back at a later date with an offer...or not.
5) Have A Social Proof: Investors will always ask what your business plan is, who is behind it, how much funding it has received so far and many other questions. That's why you need to have a social proof, which is basically a way of proving the credibility of your idea.
A social proof is a measure of success that can include products and services, revenues, and number of employees. If you are just starting out without much experience with your startup idea, it may be difficult to attract investors. However, having customer acquisition rates on platforms like Facebook or Twitter can help demonstrate the demand for your product or service - as well as its potential profitability.
Another option is to include customer testimonials into your pitch deck in order to make yourself more credible. This strategy can be just as effective, but you need to know how to write a good testimonial.
You can read more about the importance of social proof here .
6) Craft A Clear Message: To close out your pitch, you want to be able to make your business stand out. Make sure you clearly answer all the questions that investors ask and respond appropriately when the conversation fades away. You might also want to consider being strategic with your pitch and deciding on what information is most important for investors to see. For example, if they hear about a delay of up to six months in achieving revenue goals, they may not offer much capital in order to help you get things back on track.
A strong pitch is important because it will help allow you to get face time with investors - which can lead to better results. You can read more about what an effective pitch looks like here , there are also tons of examples online, including the powerful and often-successful pitches from Kickstarter and Indiegogo .
Once you have presented your ideas to a few different venture capital firms in your industry, you will start to gain a better understanding of how the investment world works and what you need to do next. Here are some other tips for getting venture funding:
1) Start With a Smaller Amount: The best way to test the waters is by starting with a smaller amount.
Conclusion
Once you have started to get some traction with your idea and have a set of customers, you can begin fundraising for your business venture. As you can see, there are several steps that are involved in getting VC funding. Although the process is different for everyone, investors will use many of the same strategies since they do want to make money and they want to be sure that they are making good decisions.
If you're considering raising capital through a startup accelerator program or micro-funding (such as Seedrs or CrowdCube ), it's important that you understand how the industry works and what types of people will be investing in your project.