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How to Get Startup Funding: The 5 Best & Worst Approaches

how-to-get-startup-funding

Approaching startup funding is a difficult task, especially for new founders. You don’t know where to look, who to turn to or what the best practice is. As a group of founders here at Entrepreneurs Collective, we understand your pain points! We’ve got our heads together and come up with the 5 do’s and 5 dont’s of startup funding for new entrepreneurs. We want you to hit the ground running when looking for investment. Anyway, enough of the introductory small talk here’s our guide on how to get startup funding –

Best Ways to Approach Startup Funding

Make use of your local network

Making use of your local network is really important. There are two aspects to this. The first is your family, friend and school network. They want the best for you and want success for you (as you would for them) so reach out to them and ask for help. They may provide advice, introductions and potentially might decide to invest in you! 

The second aspect is your local business or founders network. They can help make introductions across strategic areas, whether it’s an investment, legal, financial, etc. as well as give you the support and guidance that all new founders need. Don’t just chase after big investor names, the odds are much lower than you’ll get their attention. 

Due diligence on investors

Before pitching to an investor, you have to consider the relevancy of them for you. Do they invest in your sector? Do they invest in companies at your stage? Have they invested in a competitor? How much value do they add, beyond the money? Understand their preferred level of involvement, industry focus, geographical preference, typical check size, and valuation range.

This requires more than a scan of their website! Speak with founders and CEOs who have worked with them, research their most recent investments and gain a real understanding of the people you are pitching to. By researching an investor, you’ll begin to understand whether they are a good fit for you. It’s not just about whether you are a good fit for them.

Build some traction

It’s fair to say that new entrepreneurs will be held to a higher standard by investors than those with a track record of success. Investors will be wary of you and your product or service if you have no traction. By building traction, you’ll build leverage for any future negotiations with investors. If you get to the pitch without any sales figures or feedback on your product or service, you’ll put yourself in a weak position for negotiating. 

Listening to early adopters, the people who initially believe in your product, and developing with them in mind, will be the perfect foundation for any traction. Getting early adopters on board is often the most difficult, but if you listen to them and your product or service grows with their feedback, you’ll undoubtedly see sales rise. And that, my friend, is the start of your traction growth.

Time it right

Similar to building traction, but timing is everything. Whether it’s the right time for your product in the market or the right time for you to approach investors, making sure you’re moving at the right pace is essential. Yes, you need money to continue doing what you love, and you’ve probably seen all your LinkedIn followers raising huge financing rounds. But stop looking at them and focus on yourself. Take a few deep breathes, relax. Ask yourself, is this the right time?

You need to think carefully if now is the right time for a big financing round. If you’re too early, investors will define the terms. By waiting, building traction and gaining credibility, you gain more leverage for negotiations. In an ideal world, you’ll build enough traction that will have investors chasing after you, all wanting a slice of the pie. If you’re being chased, rather than the other way round, it will undoubtedly lead to better terms for you and your startup.

Be an investible person 

It’s no secret that investors like to invest in people just as much as good ideas. Making yourself investible means becoming a thought leader in your field, being passionate about your business whilst staying grounded, humble and determined with whatever comes your way. 

Be an active member of your startup community, speak, write, organise events and become a well-rounded professional. Be a giver! Give back to the community, even more so than you take from it. Demonstrate your passion for your sector and your business, become an expert. This can help with any tricky questions that investors ask you during a pitch too. Even if your idea could do with some work, investors will take note if you’re an investible person with a genuine passion and knowledge for the sector you find yourself in.

Worst Ways to Approach Startup Funding

Just sending cold emails

Investors are inundated with cold emails and random solicitations. If you send a cold email, I can guarantee you will be ignored. Getting a warm introduction through someone in your network may not lead to anything but the chances of a response are so much higher. It sets you apart from the thousands of cold messages investors receive and puts you in good stead for laying the foundations of your future investor relations.

There’s no excuse to send cold emails really. With platforms like LinkedIn, it’s so easy to find mutual contacts between you and an investor who can give you that warm introduction. Better yet, go out to networking events and introduce yourself to investors! Both of these options will bring you much more success than sending a cold email. Just stop sending cold emails.

Expecting an instant cheque

Even if you’re pitch goes incredibly well, and the investors are impressed, they aren’t just going to hand over a huge novelty-sized cheque to you at the end. Due diligence processes could take weeks or months after. 

Creating a strong relationship with an investor is more beneficial than just thinking about the cash injection that they may give your business. By focussing on building the relationship, you can determine whether this is someone you can potentially work with for 10+ years. In the long run, this is so much more important than any cash investment. 

Overestimating your valuation

The worst way to start off any investor-founder relationship is by over valuating your companies worth. Yes, it may show you have confidence in your product or service, but to some investors, it may look like you’re asking for too much and giving too little away. 

This stems from the importance of transparency and honesty in investor relations. It’s not good practice to bulk up your value in an effort to get investment. Be honest and open if your valuation isn’t as high as you would like, and emphasise the point that you’re dedicated to growing the company. Being transparent sets a perfect foundation for a strong relationship with investors, which is a healthy long term strategy.

Thinking money solves all your concerns

Investment only goes so far. Pouring lots of money into something won’t solve all your problems. If it’s a bad idea, all money will do is delay the inevitable – failure. Your attitude, drive & determination mustn’t plateau after a successful fundraiser. It should drive you on further. How you spend the money is crucial. Make sure you’re utilising investment for genuine growth in the company – and not just that mega Christmas party you’ve always wanted! 

Seeing ‘No’ as a negative

If an investor declines to fund you, this doesn’t mean they never want to hear from you again. This is not a forever rejection. Utilise their feedback, and come back at a later date.

Every “no”, should give you the motivation to learn, regroup, refocus and come back stronger. At the start of your journey, a “no”, can almost be just as important as a “yes”, as it gives you the chance to understand your companies flaws and rectify them before you’re too far down the line.”

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