Getting your business dreams off the ground can be daunting, especially when it comes to raising that first critical funding.
But if you take advantage of some time-tested strategies (and avoid a few common pitfalls_ it can definitely be done. Read on for some invaluable tips on how to get that elusive funding for your company.
1. Learn to Network Effectively
The importance of networking is almost a cliché in the startup world, but a lot of people still do it poorly. Successfully networking doesn’t mean spamming people on LinkedIn or passing out hundreds of business cards at every get-together. Rather, it always starts with a genuine connection: You have to find commonalities, areas of shared experience or affection, and bond over them.
2. Sell the Business, Not the Company
One mistake that many prospective founders make when they’re chasing investment funds is to talk too much about dreams, visions, values, culture, “vibes.” However, in no uncertain terms, investors want to hear about the path to profitability. They want to hear how you’re going to make money and, more importantly, how you’re going to make them money.
It’s fine to talk about inspiration, or why you’re chasing your dream, but keep it short, and then get into your business plan.
3. Connect With the Human Element
Investors may convey an objective, analytical persona, but they have affections and aversions like anyone else. Before a big presentation, research your potential investors, and tailor your pitch to them. Use sports metaphors if they’re former athletes, or work in a few references of the organization they’re a proud booster of in their hometown.
Even the most unemotional investor is more likely to engage with a personal connection. Don’t worry about sounding insincere – more than anything, a savvy investor will appreciate your attention to detail.
4. Pitch Your History
From day one, keep exhaustive business records. When investors are deciding whether or not to back you, they want a clear vision of your past to envision your future. What do your first-year numbers look like? Are you carrying a lot of business debt? Even if you’re just starting out, documentation of a fast rise forecasts great things – and can be very persuasive.
5. Crowdfund
From its humble, somewhat quirky origins as a way to raise a few bucks, crowdfunding has become a viable, legitimate way to raise millions for your business. With a robust network, savvy marketing, and an appealing presentation, you could have hundreds of thousands of people lining up to give you money.
Crowdfunding has peripheral benefits, too:
- If your business fails, you won’t have to pay back your many investors – unlike a business loan, which you’ll be paying off long after your business has disappeared.
- You’ll have a built-in population of early adopters who will be able to offer feedback, providing a valuable opportunity for course corrections.
- Thousands of people investing money in your idea is proof of marketplace adoption, which carries a lot of weight with potential big investors.
Last but not least: steer clear of equity-based crowdfunding to maintain complete control over your enterprise.
6. Enter a Competition
Some potential founders hesitate to enter the many startup competitions that have proliferated online. Often, they’re afraid people will steal their idea. But the truth is, investors back people who can execute a vision, not someone who just has a good idea.
Entering these competitions can supercharge your networking, as you’ll meet a lot of other visionaries, investors, and finance professionals. Even if you don’t win the competition, you may meet your next CTO or the person who’ll underwrite your big business loan.
Competition will only further refine your vision. Putting together a detailed presentation may expose weaknesses in your business plan, yet being in the spotlight will only help you down the line, when you may have to perform on bigger stages.
7. Tap Into Your Existing Network – But Tread Carefully
One of the most accessible sources of funding may be staring you right in the face: your friends and family.
The downsides are both minimal and massive. On one hand, it’s not likely your grandparent or college roommate sues you over a lost investment. On the other hand, losing your parents’ retirement funds or your sibling’s down payment may change your relationship with them forever.
So think long and hard before you accept a check from your parents or your best friend. If you do take investment funds from your friends and family, experts suggest you treat them like conventional investors: Give them the full presentation, and make it clear there’s a real risk that you’ll lose their money.
8. Be Confident, Not Arrogant
When you’re pitching to investors, don’t go overboard and get too grandiose. They’ve heard countless pitches for businesses that “will fundamentally change the world.” In fact, it’s the mark of a rookie if you shoot for the stars right out of the box. Give them a realistic, concrete idea of how you envision your company’s potential.
The same applies for telling them your idea can’t fail – ALL investments are inherently risky. investors know this, and you could come off as deluded if it seems like you don’t.
Don’t Leap Too Soon
This can be a tough piece of advice to take, but try to keep your day job until your business is on solid footing. Totally committing to your business is admirable, as is having an appetite for risk. But when your cash reserves start to dwindle, you may start feeling desperate. Suddenly, inadvisable moves like running your business on credit card debt can seem much more palatable. And making business decisions from a place of dread and desperation almost never works out for the better. Be bold, be assertive – and be patient.