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Raising Capital

The Basics of Raising Capital for a Startup

Unless you have a clearly defined plan and a path to follow, you're going to waste precious time.
The Basics of Raising Capital for a Startup
Image credit: DNY59 | Getty Images
Contributor
Founder of FE International
5 min read
Opinions expressed by Entrepreneur contributors are their own.

Cash is the lifeblood of business. If you run out of it and lack access to additional resources, the game is over.

As the founder of a startup, you'll find that raising funds is a significant part of your efforts and, for better or worse, a major challenge. Unless you have a clearly defined plan and a path to follow, you’re going to end up wasting precious time that could have been spent elsewhere.

Related: Raising Capital? The Latest (and Greatest) Ways to Fund Your Startup

So, understanding the basics of raising capital will be critical to your success. If you’re clear on what you need to do to get from where you are to where you want to be, you'll be less likely to derail while you’re in the thick of it. Here are the steps you need to take:

Preparing yourself for the road ahead

Preparation is crucial to finding the funding you need. This step is often overlooked, but unless you want to be constantly pumping your own resources into your business, you'll want to assess and address various aspects of your company to ensure its overall readiness.

Not only will you need to examine your team’s overall health from every angle, but to research your industry, competitors and the market, define your products, prepare financial projections and determine how much money to raise, plus decide whether to tap into debt or equity.

Preparation may be the most time-consuming and effort-intensive aspect of raising funds. But if you know what you want and outline the rationale behind those choices, you'lll find it easier to figure out whom to target and ask for what you need.

Remember, as you court investors, they will be asking the tough questions. So, you'll have to be equipped with all the relevant information you need.

Related: Show Me the Money! Best Practices for Raising Capital for Your Startup.

Researching the different types of investors

Just because you’ve decided whom you’re going to go after and what amount to ask doesn’t necessarily mean you’re going to get what you’ve requested. When it comes to financial matters, the more options you can identify, the better. That way, you’ll always have a backup plan when you need it.

Among the different types of investors out there that you may consider are: founders, family, friends, venture capitalists, angel investors, single family offices, business incubators, investment groups and crowdfunding pledgers.

Keeping in mind that some forms of funding are costlier and riskier than others, you can also use credit cards, lines of credit, bank loans and the like. These financing options are often last resorts or backup initiatives, as they are more contingent on the condition of your personal finances and assets, versus the value or potential value of your business.

Getting your pitch deck ready

Much has already been said about the necessity of a pitch deck and the ways in which to put together an effective presentation. The fundamentals are that your presentation should be used to highlight the most attractive aspects of your business.

Keeping your target audience in mind and knowing what’s important to investors is key.

Generally, 10 to 15 slides containing information on your company, your team, competition, target market, milestones, future plans and funding requirements is sufficient. Armed with this information, your prospective investors should be better able to decide on a course of action that’s in alignment with their best interests.

Networking and finding potential investors

You can never know too many people. While networking, you don’t necessarily need to be constantly promoting your business; you should make sure you are helping other people. This will help you garner a positive reputation, and when you help others get what they want, they will be more likely to help you.

Keep in mind that you will face rejection when discussing your business with others. Some investors may not be looking for an opportunity right now. For other people, your concept simply won’t be the right fit. Knowing this going in can save you a lot of heartache and stress.

Researching various investment groups and resources online can prove worthwhile. Just don’t get sucked into the bottomless blackhole of the internet. Try making a phone call or sending emails, so that you remain proactive when reaching out.

Finding companies that offer capital in your niche

If you have a niche business model aligned with ecommerce or SaaS, or you produce devices for the healthcare industry, say, you can find investors that offer funding to those types of companies.

This isn’t to suggest you won’t need to look for additional sources of funding, but if finding tailored solutions streamlines your process of finding capital, it will be worth looking into.

Related: The Only Advice Women Need to Raise Capital

Final thoughts

Even with all your ducks in a row, there are no guarantees you’ll get the capital you need from the investors you’re courting. But problem-solving is part and parcel of entrepreneurship. Knowing all your options and what you can do to get the money you need can give you greater confidence when you encounter bumps in the road. And that is something you, unfortunately, can count on.

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