Startups need finance at every stage of their business growth. Entrepreneurs must pitch for funding at the pre-seed, seed, and later stages if they are to continue growing. Of course, adequate funding in the initial stages is critical to get the business off the ground, like the support you’ll get from startup accelerators.
Before you set out to pitch to investors, you’ll determine the type of finance you need, how much, and the appropriate sources to acquire it. For instance, do you need the money in one go, like for setting up a production unit? Or, do you need it in stages as the business grows? The amount of funding will also influence the source you’ll tap. Here’s some added information you’ll find helpful.
Start by Investing Your Personal Savings
Sinking your personal savings into the new venture motivates you to work harder to ensure its success. As long as you have an excellent personal credit score, you’ll also use credit cards and lines of credit and reach out to family members and friends for their support. Although they are informal investors, be sure to treat them just as you would any other source by drawing up the necessary legal paperwork and outlining the loan terms, including interest and repayment terms. Tapping contacts, colleagues, and extended acquaintances in your network could also work.
Startup Accelerator Programs
Accelerator programs are suitable for entrepreneurs at the pre-seed stage who need not just funding but also business know-how. They invest anywhere from $10,000 to over $120,000 in assisting each entrepreneur they accept into the program. The on-site, intensive programs may last up to three months and include work premises, infrastructure, mentoring, and staff assistance.
The objective here is to provide a launch pad that founders can use to develop a product prototype. They also get training in preparing and presenting pitches to prospective investors on the proverbial “demo day.” Startup accelerators can be non-profit or private organizations, offering access to investors’ networks. Founders can connect with them for funding.
Private Individual Investors and Angel Investors
There are an estimated 250,000 private angel investors in the US, funding around 30,000 startups per year. These investors are not a part of any organization, but individuals, successful business owners, philanthropists, and executives with the means to support entrepreneurs. They are often looking for interesting, out-of-the-box ideas that they might choose to fund.
The best way to connect with such angels is by networking and being ready with what is known as an “elevator pitch.” These pitches are super concise, packed with compelling information, and delivered within 20 to 30 seconds. Expect to get funding ranging from $25,000 to $250,000 if you are successful.
Once your company is established and poised for rapid growth, you’ll need more significant amounts of funding, and venture capitalists are the ideal source. Suitable for startups requiring $1 million or more, VCs offer not just money; they’ll also provide valuable expertise and guidance on how to take the company forward. However, you may want to approach VCs only if you’re prepared to fork over equity and some control and decision-making rights in exchange for the investment. Locating the right investors, connecting with them, and finalizing the deal is a time-consuming process that could take up to 6 months.
As an entrepreneur with an innovative business idea suitable for a niche market, getting funding to commercialize your concepts is easier than you think. Determine the stage where your company is at, the kind and amount of funding you need, and reach out to the appropriate sources to drive your business forward.
Alejandro Cremades is a serial entrepreneur and the author of The Art of Startup Fundraising. With a foreword by ‘Shark Tank‘ star, Barbara Corcoran and published by John Wiley & Sons, the book was named one of the best for entrepreneurs. The book offers a step-by-step guide to today‘s way of raising money for entrepreneurs.
Most recently, Alejandro built and exited CoFoundersLab, one of the largest communities of founders online.
Prior to CoFoundersLab, Alejandro worked as a lawyer at King & Spalding, where he was involved in one of the most prominent investment arbitration cases in history ($113 billion at stake).
Alejandro is an active speaker and has given guest lectures at the Wharton School of Business, Columbia Business School, and NYU Stern School of Business.
Alejandro has been involved with the JOBS Act since its inception and was invited to the White House and the US House of Representatives to provide his stands on the new regulatory changes concerning fundraising online.