You Can't Get Funding Without These 4 Steps
As an entrepreneur, you have a dream. You're working around the clock to make it happen. And as you begin to build momentum, it's time to raise capital from investors.
If you're working on a scalable startup, raising money from venture capitalists can be transformative for your business. This is true for a number of reasons:
A VC investment is like rocket fuel for your startup. It allows you to scale faster and achieve product-market fit sooner.
VCs are experienced entrepreneurs themselves. They've built companies and know what it takes to get things done in the real world. In addition, they often sit on the board of directors and help steer the company in the right direction.
Access to other entrepreneurs who have raised money from VCs can be invaluable. This is especially the case if they are in your domain or are otherwise connected to potential customers, partners, or other investors
That being said, there's no denying it: raising money from VCs is tough! While many of them want the next big thing, most of them are also looking for a safe bet with a proven team that's already got traction in the market.
Most business owners forget the essential steps needed before asking for funding.
In this article, I'll share with you four steps that will help increase your chances of getting funded by the venture capitalist firm of your dreams.
1. Create an in-depth business plan
No matter how unique you think your idea is, there are likely to be over a thousand other companies offering the same product or service. Why do you think you can take a chunk out of their market? What makes your business better?
This is where having a solid business plan that answers all these questions comes in.
Your business plan is the foundation of your business and having one not only guides you on the operational elements of your business for you and your team, it also increases your chances of getting funding.
You also need to have a clear understanding of your target audience. Who is going to buy your product and why? Who are your competitors and how will you differentiate yourself from them?
Your startup's business plan should address key issues like the target market, marketing strategies and financial projections. Your business plan should also include details about people involved in the business, including their previous experience, expertise and qualifications.
The most important thing that investors want to know is what sort of return on investment they can expect. Pitching your plan with an eye towards profitability is essential.
That's where the financial section comes in. If you're seeking financing, it will be the first place investors and lenders look, so it has to be solid.
Without solid 3-5 year projections, it can be hard to justify hiring new employees or taking on new space. That's why sales projections are so important.
The key thing is not how accurate your sales forecast is, but how well you know your business. The more certain you are about what kind of spending the forecast suggests, the more confident they can be in other aspects of your plan - and the more likely it is that they'll consider giving you a loan or investment.
2. Work on minimizing your initial business costs
Did you know that 82% of small businesses fail due to cash flow issues?
The main cause is usually unnecessary costs, but sometimes entrepreneurs spend too much time chasing funding instead of working on their product.
The first thing to note is that a startup is not just any small business. For example, a barbershop may not need much capital to open, but it doesn't scale. A barbershop can be profitable with one person and a pair of scissors; adding more people doesn't help much.
Whereas in a startup, the founders are expected to work hard and showcase their dedication to growing their business idea from the outset, even before you approach investors for funding.
If you're looking for funding for your startup, you should also work on minimizing your initial business costs. Venture capitalists will ask about your costs and the more reasonable they are, the better. They want to know they are getting the most returns possible for every dollar they put in.
If you can showcase to your investors that you are capable of keeping costs low without compromising on quality, you're on the right track.
There are some ways you can do this. For example:
Instead of renting out an office, you could work from home initially or in a co-sharing space with other businesses.
You can focus on paying for raw materials or any supplies you might need as you go instead of paying upfront in large quantities.
Spend more time finding cost-effective materials or developing relationships with suppliers and partners to negotiate better terms.
The more you focus on keeping costs low in the initial years of your startup, the better the benefits when you pitch for funding.
3. Create value and get traction
Founders often ask me if they should start with a good business plan or pitch deck in order to attract investors' attention. My response is usually "no." What they should do instead is establish some initial traction and demonstrate how much value their idea can create in the business world.
The most important thing is to demonstrate realistic traction. If your company valuation is high, it has to be backed up a history of sales that justify it. Traction is, in layman's terms, the proof that customers want your product.
Source: Base Templates
So if you are a startup with no sales at all and you are pitching a panel of investors to give you money to make your product, how do you demonstrate traction? You can:
show them results of market surveys about whether people would use the product.
show them results from beta testing, asserting that people loved it.
showcase some early adopters willing to vouch for you.
But none of these pack the punch with investors that real traction would. VCs are busy. They want to see that you've done the work and your business is real. Showcasing real sales figures comes in handy here.
There are a number of metrics you can include to demonstrate traction including:
Quantitative growth metrics. e.g. retention rates, number of downloads (in the SaaS space), Annual Recurring Revenue (ARR)
Qualitative inputs: e.g. social proof or testimonials, media coverage or feedback from startup accelerator programs
Remember, if you make something people want, then you don't have to worry about traction. If you make something people want, then the problem of traction solves itself.
4. Build a compelling pitch investors can't say no to
Investors are very busy people. If you pitch to them with just an idea, they will turn you away because they will have nothing to evaluate.
Many entrepreneurs make the mistake of thinking that the investor’s job is to figure out if their idea is good or not. The truth is that your job is to convince investors that your idea is good and that you can execute it before someone else does it first.
In order to stand out from the crowd, you need a concise, compelling pitch that highlights how your company solves a problem for a large group of people and why now is the right time for it.
This pitch should be available in multiple formats including PowerPoint, video or web pitch, one-pager or executive summary, and even include an elevator pitch (30 second pitch).
The key questions your pitch should solve include:
What problem is your startup solving?
Is there a sizable portion of the market seeking a solution to that problem?
What about your solution gives it an edge over the competition (i.e. your unique selling point)?
Investors invest in people as much as businesses or ideas. Potential investors want to see confidence and enthusiasm from the entrepreneurs they support. Make sure to demonstrate that through your pitch deck.
And of course, don't forget to practice pitching it a hundred times over before your audience with the 'sharks'. Gather feedback and practice your pitch to perfection.
Get the funding ball rolling today!
Are you a startup looking for investments?
Whether you’re looking for funding through a venture capital or angel investor, I hope I’ve provided some valuable insights as to how you can most effectively get in front of potential investors and secure an investment round.
No matter how great your product or service is when it comes to starting or growing your business you will need money to fund it.
At Garibay Ventures, we understand how frustrating the funding journey can be. Our goal is to help impactful entrepreneurs and businesses achieve their full potential.
Be it through investing directly in your business or providing you the resources you need to get your marketing sorted and revenue accelerated, we're here to help you out.
Sounds intriguing? Reach out to us today!