The fundamental act for any startup is to raise capital. The founder(s) of startups often find themselves spending most of their time, energy and efforts in developing strategic plans to attract funds and investments. It is not as simple as many may think.
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- 1 Steps to raise funds for your startup
- 1.1 Step #1: The Idea
- 1.2 Step #2: Theoretical Prototype
- 1.3 Step #3: Sampling
- 1.4 Step #4: Functional Prototype
- 1.5 Step #5: Acquiring Customers
- 1.6 Step #6: Monetizing Strategies
- 1.7 Step #7: Scaling the Product
- 1.8 Step #8: The Pitch
- 1.9 Step #9: Finding the Funding
- 1.10 Step #10: Delivering the Pitch
- 1.11 Related
Steps to raise funds for your startup
The startup founders and entrepreneurs spend several hours contemplating an approach in hope of procuring some capital. They approach angel investors, venture capitalists, and attend conferences to promote business and to impress some big names to invest in their startup.
Here are 10 steps for the budding entrepreneurs based on which they can formulate a capital acquisition strategy that can help them identify and approach to the potential investor.
Step #1: The Idea
Just the idea isn’t enough to attract funds. You need to go deeper into your idea and break it down into parts to identify the uniqueness of it.
This unique feature will let you stand out from others. Once you have identified what is the most unique feature of your idea, try to describe it in a couple of words that becomes your Unique Selling Point (USP).
Use the USP to develop an interesting pitch summing up the problem, your solution to it and how yours is different and better than others already available.
Step #2: Theoretical Prototype
Now that you can define your USP, it’s time to develop a prototype around it. The prototype doesn’t have to be a finished product sample.
You can put the USP into a PowerPoint presentation, or simply an image in Photoshop, or draw it out on a piece of paper to show it to the potential investors, or create a small animated video describing your products and its unique features.
Step #3: Sampling
Once a simple prototype is ready, throw it out for testing, which means let it out and explore what your prospective customers have to say about the prototype.
Record their experience and take a representative sample to develop a market research report. During this step, try to identify the reasons why your prospective customers liked or disliked the prototype, what kind of features they are expecting, and why or why not they are interested in using the final product.
Step #4: Functional Prototype
Considered as the most difficult and challenging step in your journey to raise capital, transforming the pictorial prototype into a functional one is not a cake walk.
The intention here is not to develop the final product, but only the functional unique feature of the idea. Remember that “an idea is no one’s monopoly”, so you have to be very careful while developing or getting the functional prototype developed.
You can reach out to your friends, relatives or anyone who can help you develop the product. You can also get them to sign a Non-Disclosure Agreement to avoid any conflict between yourself and the developers.
There is nothing better than a functional prototype to impress and convince the potential investors.
Step #5: Acquiring Customers
Another difficult and challenging step to get people attracted to your product.
From social media portals like Facebook, Twitter and Instagram to YouTube to writing blogs to newspaper articles to TV/radio ads (if you can afford) to partnering with other startups, make use of every available platform to spread the word about your product as much as you can.
The intention of this step is to have a sufficient base of potential customers. If you are unable to acquire a good number of customers, go back to step #1, reevaluate, redefine, re-engineer and restart.
There is rarely any startup that got everything right in the first attempt. Be prepared to face the challenge not just monetarily, but mentally and physically too.
Step #6: Monetizing Strategies
By the time you finished the previous step, you will be sure enough that your idea with its unique features is strong enough to be converted into a reality. This calls for the need of a business model around your idea, which means identifying the ways in which your idea will generate income.
This is the step where your idea will turn into a business. Herein, you need to identify the collaborators who will play a crucial role in process of developing monetizing strategies.
Now, the decisions and inputs by these collaborators or stakeholders will create an impact on your business at different levels in different forms like fiscal policy, monetary policies, state regulations, excise, HR rules, etc.
In this step, you are supposed to look at different parameters and find your way through different obstacles and still come out in profit or at least on break even. These strategies will let you procure some funds to move on to the next step.
Step #7: Scaling the Product
By now you will have enough customer base and funds coming into your account from the previous steps. It’s time to aim higher and spread out your wings. For that, you will have to scale up your product to reach to the masses.
At this point, you are all set to approach your potential investors with the right amount of information as to how much money you need, for what purpose, where it will be spent/invested, how much ROI it will generate and other factual answers to some obvious questions.
This is the perfect time to develop your pitch.
Step #8: The Pitch
This is the extension of the pitch you developed in Step #1.
In this step, you can create a simple presentation or a video describing your product, results of the market sampling, highlighting the numbers that come while acquiring the customers and scaling the product, your market reach, and position in the market.
The investors don’t only invest in the idea, they also invest in the people with whom they are associating themselves. Investors need to be convinced that their money is in the right hands, and you, your team along with a proper business model will take good care of their money.
Step #9: Finding the Funding
Once you have developed a convincing pitch, it’s time to find the investors through a local network, approaching local incubation centers, joining startup programs, attending expos with your demo, or reaching out to any personal contact.
You can also promote your product via various online and offline mediums, expecting it to catch any potential investor’s attention.
Step #10: Delivering the Pitch
It takes a great deal of trust while handing over money to someone. At this point in time, you want your potential investors to trust you.
When pitching them your idea and product, try to display your sharpness, thoroughness, diligence, and intelligence. Prove your trustworthiness to them.
As a startup founder, they don’t expect you to know each and everything about the business. But you have to make sure that you are prepared to answer any kind of question presented to you. Going through a mock interview would a good call here.
Getting the investment is like being on a quest; you may be directed from one person to another before you reach to the right person at the right time. All you must look forward is to impress your potential investors.
Just like any typical treasure quest, this is not going to be very straightforward. You must be ready to face rejections, and you must be ready to do the same pitching again and again to a number of investors before you find the one(s) who decide to invest in your firm.
It takes a lion heart while you are aiming to raise fund for your startup. You may fall, get rejected but you dust it all off and start all over again.
Every rejection turns out to be a lesson to perform better next time. There is seldom any entrepreneur who hasn’t faced rejection.
This 10 step guide is not a foolproof plan that works every time and everywhere, but it may be helpful to all budding entrepreneurs who can follow this guide for future endeavors.
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