Are You Ready to Fundraise? These Tips Will Help You Answer that Question
Every funding decision is a complex tradeoff between near-term and longer-term costs and paybacks, as well as overall ownership and control.
During Project Entrepreneur’s 2016 Summit | NYC: Fundamentals of Funding, Derek Ohly, Co-Founder & COO at peach, presented “So You Think You’re Ready to Fundraise?” He made the case that entrepreneurs don’t have to always raise money and the path forward is different for everyone. When considering which of the sources would be ideal, use the following consideration as guideposts:
Market research is the most critical step for any startup. A part of this research should involve market size. Without knowing your market size, you may be conducting business in a market so small, it’s next to impossible to make any money.
The type of opportunity you are presenting
Highlight your expected financial and operational results in terms of the metrics which matter most to your audience and provide some details on how you will spend the resources. Throughout, be open to feedback.
The present life-cycle stage of your startup
The moment you make the decision to set up a business, you’re in the “business lifecycle.” From the “seed” to “exit” stages, it’s important to realize, what you focus on today will change and require different approaches to be successful.
The investment needed from beginning to end
It’s important to understand the costs specific to your venture, regardless of its size. Getting the number right will help you determine what financing you may need to get off the ground, what it will take to reach your breakeven point (when you can expect to start making a profit), and manage cash flow once you’re up and running.
What do you want?
By the time you accomplish maturity at the end of the life-cycle, your start-up is thriving with a good customer/support base and regular cash flow. At this point, a formal and more detailed approach towards planning should take place.
Typical funding sources usually follow a hierarchy. These alternatives have advantages and disadvantages.:
- Bootstrapping – If you can get to market quickly, then you might consider funding through revenue, cash flow or customers.
- Raising Money from Outsiders – Friends, and family, your extended network, wealthy individuals, online fundraising platforms and angel groups could be an ideal place to begin. Networking is key to tapping into any of these resources.
- Professional Investors – these include venture capitalist as well as family offices. The latter are wealthy(syn) families who have their own wealth management teams.
- Corporate Investors – Companies in many industries, from technology, software, and consumer retail to aviation, media, and mobile telecommunications, have corporate venture arms that make strategic investments.
- Grants – are favorable as they are non-diluted, and they won’t cost any equity. However, the process to secure funding can be longer.
- Debt – This tends not to be a vehicle of choice for an early-stage startup if it’s looking to scale.
“You don’t have to raise money always; there are some very successful companies which don’t. As you are looking to fund your startup, it’s important to evaluate what you will need today as well as what you will need in the future,” Derek says.
Ohly’s advice comes from his #PESummit workshop, “So You Think You’re Ready to Fundraise?” Listen to the entire workshop on episode 15 of our podcast, #theTools and be sure to subscribe.