Startup funding is often viewed as the holy grail that allows entrepreneurs to take their business ideas from concept to reality. Startups come in different shapes and sizes. There are potential global reaching businesses and there are successful hyper-local operations. What is the common element that helps them to launch and remain operational? Why startup funding, of course.
What do funders want to know about a business before they start trusting them with their money? Is it just mere profitability, or is there more to it than that?
There are lots of different strategies to secure startup funding to launch a new business venture. Some of the most widely used startup funding sources include friends and family, self-funding, bootstrapping, bank loans or lines of credit, crowdfunding, angel investors and venture capitalists. Regardless of the source, when it comes to pitching outside startup funding sources, you need to have a solid business model and a strong pitch that covers all the bases.
What specific things do funders want to know about your business before they offer you startup funding? Here are the top five things they want to know.
- Consider your risk profile. A funder will always weigh risks versus rewards. They take big risks when investing in startups so why not ease their burden to begin with? Be transparent about yourself and your business. You can do this by being on top of all regulatory requirements and be open to them as much as you can. Being ready to face your prospective funder or lender with openness and honesty, can go a long way in helping you overcome risk.
- Good social media presence. Are you able to show funders that your product or service has value among your current and prospective customers? If so, that can be a huge push towards securing startup funding. You should be able to show buzz and public interest through traditional media reporting and social media traction. When people talk about your products in amazing ways, funders will be more amenable to give you their money. Have a minimum viable product and test it to reach the best demographic your product will be served to. Buzz can be strong validation of value.
- Your team members and leaders. Nearly always, even if your business is the best thing since sliced bread, funders will not be so accommodating if you don’t have the right management team. They are not just looking for the best businesses, they need to know that a strong, capable team is at the helm.
- Market size of the business. Do you know what your business will be like in five years? Well, funders would love to know that. If you can project the size of your market going into the future, that will make finding and securing startup funding easier. Investors and lenders don’t like stagnant businesses that will go nowhere. They want something dynamic that will make them money too.
- Competitive advantage. In the startup funding world, there is a concept called margin of safety. This is something that investors call a moat so they have a buffer in their valuation when they invest. Similar to this, competitive advantage is like a safety net. It means that you have a leg up when competition starts to sprout around your business.
A pathway to profitability is a given. Funders will always look to profit. This is a business after all. That’s why they need to know a few important things about your startup before they consider providing startup funding for your new business venture. If you’re looking for resources to learn more about startup funding options for various types of new businesses, the U.S. Small Business Administration has some great resources.
Interested in learning more about startup funding and strategies for securing it to help take your business idea from concept to reality? Contact me today and we can talk. And if you’re interested in learning more about where most startups get their funding, you can read an analysis about sources of startup funding here.