Of all the challenges faced by a startup, funding is probably one of the top concerns. How to get funding for a startup and what are the things to keep in mind while securing funds? These are the most common questions that haunt entrepreneurs during the early stages of funding.
The startup ecosystem, however, has drastically changed over the past couple of years. The number of investors, including VCs and angels with large pockets, has surged. Plus, technologies like cloud computing and AI have made it easier for startups to enter the market more comfortably. Take, for example, Coffeemug.ai, which is a professional AI-powered networking platform aimed at helping emerging startups with funding, mentoring, and business connections.
To ease the funding process, Coffeemug.ai has curated a list of the Do’s and Don’ts for startup funding based on extensive research and analysis. Continue reading to learn more about these recommendations that will help you succeed.
Do’s and Don’ts of startup funding
Do #1: Understand your stage
Too often, entrepreneurs jump into startup funding rounds without understanding what stage they are at and, consequently, don’t get the right type of investment. Before anything else, make sure you know where your business stands.
There are four stages in the startup funding cycle: inception, development, growth, and maturity. It’s important to be aware of which stage your business is in so that you can ask for the right type of investment.
- Inception is when a business is just starting out, with no product or customers yet.
- Development is when a product or service exists but isn’t making money.
- Growth is when a company makes money, but it’s not scalable.
- Lastly, maturity is when the business could IPO or be sold.
Incorrectly raising funds to enter growth too early can kill a company. Not only can it leave entrepreneurs under-capitalized for what they really need, but they risk losing control of their business. This happens because most venture capitalists want founders to have less than 20% ownership so they have majority control over how the money is being spent.
Do #2: Validate your startup and see if you can sell it
Validation is key when starting a business. But what if you have completed that step, and are ready to ask for funds? How do you know whether or not your startup is worth investing in? This can be a difficult question to answer, but there are a few guidelines you can follow.
First, consider how developed your product is. Is it something that can be easily replicated, or does it have a unique selling proposition? Additionally, examine the size of your potential market. Finally, evaluate your team and their ability to execute on the vision. If you can confidently answer these questions in the affirmative, then you may be ready to pitch your startup to investors.
Do #3: Be Flexible
Youtube, the world’s largest video site, was initially started as a dating site. Netflix, the world’s most popular video streaming platform, began by mailing DVDs to clients. Both these companies managed to increase the likelihood of getting funded by being flexible in their ideas.
The willingness to change and adapt as needed to meet the demands of your target market is critical in impressing potential investors during startup funding rounds. By being upfront with potential investors about the flexibility of your startup idea, you may be able to gain their trust and secure the funding you need to make your vision a reality.
Do #4: Be Effective
Before you go out and ask investors for money, it’s important to make sure that you have a well-thought-out and effective plan in place. Establish your goals and objectives: What do you hope to achieve with your startup? How will it benefit customers or society as a whole?
This is an important step because it gives you something to work toward as well as helps potential investors see how committed you are to making your business succeed. Know the strengths and weaknesses of your team members, partners, and associates and what they can bring to the table. Be confident in defining why they are valuable assets for your company, etc.
#1: Don’t inflate your numbers
Inflated numbers can mislead potential investors, and may end up costing you the chance of getting the funding you need. Before submitting a proposal, take a careful look at your books and make sure you are representing your business in the most truthful light possible.
So be honest and realistic in your pitch. Investors will respect that you are upfront with them and give them a better understanding of the risks and rewards associated with investing in your company.
#2: Don’t raise too much money
Many business owners make the mistake of asking for too much money from their investors before they have even proven the worth of their business. This can lead to a lot of wasted time and money as potential investors will move on to other opportunities if they don’t think your company is worth the investment. So, make sure you are clear about what you need and be prepared to justify why you deserve it. You should also be willing to offer investors a share in your business in order to sweeten the deal.
Wrapping up: Why does connecting with Coffeemug.ai matter?
It might be difficult to comprehend how startup funding works, especially for a budding entrepreneur. Having a qualified and experienced advisor at your side can make the whole process of starting a business more comfortable. Here are three reasons why connecting with Coffeemug.ai matters for startups:
- Get access to valuable resources and support.
- Stay ahead of the competition by gaining access to a vast network.
- Connect with like-minded entrepreneurs and learn from their experiences.
FAQs
Q. What are different types of funding rounds in startups?
A. The funding round refers to the startup that goes for fundraising. The types of fundraising rounds are:
- Seed round
- Angle round
- Series A round
- Series B round
- Series c round
- Bridge/mezzanine/pre-public round.
Q. What is a private funding round?
A. This type of fund enables you to raise quick limited money from your close networks and other shareholders, who are familiar with your business idea and goals.
Q. How long should a seed round last?
A. The seed round is a challenging time for all the new startups. This round takes a minimum duration of six months and lasts for six months to develop. It can sometimes take a long time for those without business connections or prior experiences.
Q. What is bootstrap funding?
A. Bootstrapping means the process of starting a business with the funds borrowed from friends and family, including your only savings and income from initial sales. This process does not rely on traditional financing methods like the support of investors, crowdfunding or bank loans etc.
