How To Raise Capital For A New Business Idea These practical methods and tools are available to entrepreneurs who want to raise money to create their own new businesses.
By Rodolfo Delgado Edited by Micah Zimmerman
Key Takeaways
- Raising capital for a new startup can be challenging, but it is possible. By having a solid business plan, networking and building relationships with potential investors, participating in startup events and competitions, and exploring alternative funding options, you can increase your chances of securing the funding you need to bring your idea to life. Raising capital is a process, and not all startups will raise the same amount or in the same way, so be prepared for different outcomes and be open to new opportunities.
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Raising money for a brand-new startup idea can be challenging, especially in a tough economy. However, with the right approach and preparation, you can find the funding required to realize your vision. Let's explore some of the most effective methods and tools available to entrepreneurs who want to raise money to create their own new businesses.
Have an "investors pitch"
An investor pitch is usually a PDF with around ten slides. It tells a story about who the company is, the service or product they offer, the problem in that market and the solution your company presents. It also shows your company traction and includes more information about your team, your staffing projections, and the potential revenue an investor can get if they back up your idea.
I recommend the book "The Lean Startup," by Eric Ries to anyone starting a new company. It is a great starting point to understand some essential terms you'll need to know, such as "minimum viable product."
Related: 13 Tips on How to Deliver a Pitch Investors Simply Can't Turn Down
A business plan
A strong business plan must be in place. Your business plan should concisely describe your concept, target market, sources of income, and projected financial results. A thorough explanation of how you intend to use the money you raise to expand your company should also be included. Potential investors will have an easier time comprehending your vision and developing confidence in your capacity to carry it out if you have a well-written business plan.
I commonly get a question: "how many years of projections should my business plan include?"
My recommendation is to include at least five years. I usually pay close attention to the first three, and year number four and five can be a little more ambiguous or focus on the bigger picture. Why? Because so many things are expected to happen within the first three years, years four and five are likely to include changes, evolutions, or pivots.
Grow your network
The next crucial step is to network and develop connections with potential investors. A wide variety of investors, including venture capitalists, angel investors and crowdfunding platforms, are likely available in any city. Even if they're not, recur to virtual platforms to connect with them (think LinkedIn or Zoom meetings.)
Get to know your connections and nurture those relationships. By establishing connections with potential investors, you can learn more about their investment preferences and modify your pitch to better suit their needs. Additionally, you can get insightful criticism and guidance on enhancing your business plan and raise the likelihood that you'll get funding.
When considering investors, I often tell them I'm looking for "strategic partnerships," which means I'm looking for an investor who will not only provide capital but also leverage their knowledge in the matter or their connections to push our plans further.
Related: Five Ways To Raise Money To Launch Your Own Startup
Attend startup events
Startup events and pitch competitions are excellent places to meet and develop relationships with potential investors. Attend as many events as possible where interactions with investors may occur. Get to know like-minded individuals who are also doing the same, and exchange ideas and what has worked for you.
Platforms for crowdsourcing are another method of raising money. Through websites like Kickstarter, Indiegogo or GoFundMe, crowdfunding enables business owners to raise money from many contributors. Crowdfunding can be a great way to attract investors for your startup and create a network of people who share your vision.
Related: 6 Steps to Planning a Free Startup Event and Making a Splash
Think outside the box
You can also request loans and grants from governmental or nonprofit organizations for a more conventional strategy. Chances are the city where you live offers opportunities or services that may help push your business forward.
For example, the New York City Economic Development Corporation provides a range of services and tools for business owners looking to establish or expand their operations in the city. Additionally, they offer Small Business Services (SBS), which facilitates access to funding and other resources for small businesses.
Consider all options available
Consider equity crowdfunding, for instance, which enables you to raise money in exchange for company equity. Alternatively, think about bootstrapping your company, which entails self-financing your start-up by reinvesting profits and reducing expenses.
Preparing for different outcomes and being open to new opportunities is important because raising capital is a process. Not all startups will raise the same amount or in the same way. My biggest advice is to approach meetings fully knowing and understanding your business plan. But most importantly, approach all meetings with enthusiasm and positive energy. More often than not, investors vest in a team or a person before they invest in an idea.
