Thursday, January 24, 2019

Avoid These 3 Mistakes When Seeking Funding For Your Startup - Forbes

You have a great idea for a startup — what’s next? Well, unless you’re a millionaire who can fund the creation of a new company entirely on your own, you’ll probably need to seek investment. There are exceptions, of course, but most companies will have to spend money to make it, whether it’s to hire a team of employees, create a website, market a product or service, or do all that and more.

As a founder, it’s difficult to know where to start looking for funding. Maybe you feel like your idea is too small for venture capital, or you don’t want to give up partial control of your organization. Whatever your misgivings, it’s important to understand that investors can offer more than just money, and their experience and advice will be even more important if you’ve never started a business before.

Once you decide that seeking outside investment is a smart choice, make sure you’re actively avoiding these mistakes before you pass "Go" and collect $200 — or $200,000.

1. Identifying investors without doing due diligence

Your list of prospective investors should start with individuals or venture capital firms that have funded businesses like yours. These investors will not only be more likely to invest if your business is similar to their past investments, but they’ll also have the most to offer your startup. A technology investor will have a network geared toward technology companies, and your startup will benefit from his or her access to talent and mentorship.

To further improve your odds of securing funding, it’s a good idea to learn as much as you can about the criteria a specific investor plans to use when making his or her decision. Before your startup is generating revenue, an investor will want to know whether your startup is targeting an audience and market that could grow revenue quickly. The investor will also likely want to know that you, the founder, would make a strong CEO. With that in mind, focus your pitch on those two criteria. Don’t ignore the long-term picture, but do emphasize why you and your idea are a good investment in the short term.

2. Asking for too little funding — or too much

Almost any founder will tell you not to shortchange or overvalue your business — instead, ask for what you know you’re worth. But how are you supposed to determine that figure? Trying to guess the worth of a business before it’s a reality can feel wildly speculative, so you should consider getting some outside help from a financial advisor.

While it’s tempting to imagine that your business will be wildly successful, start small and temper your expectations. Instead of asking for as much money as you can find, focus on raising enough to allow for a sufficient runway. Drew Gerber, a serial entrepreneur who founded a tech company, a publicity firm, and a financial planning business, says an entrepreneur needs about six months’ worth of fixed costs in his or her pocket before launching a business. Start by calculating what that amount would be for your venture, and explain your thought process when making your pitch to investors.

3. Selling to the wrong people

When you’re still in the planning stages of your startup, it’s easy to tell yourself that you would never sell your product or service to someone who didn’t need it. Of course, when you’re staring down a rapidly disappearing runway, such convictions are much harder to maintain, and it can be tempting to make small changes to your offering in order to appeal to a broader market.

Vijay Sajja, founder and CEO of Evergent, advises against going down this road. “It can be hard to say no to a sale, but your company will be better off if you stick to selling to the customers for whom your product was originally designed. They’ll pay the most because the product perfectly fits their needs, and keeping these ideal customers satisfied will cost you the least.” Furthermore, any product changes you do end up making won’t be costly one-offs. Rather, they’ll be refinements that will serve your customer base as a whole.

Many founders are intimidated when it comes to asking for money. That’s understandable: S

Startup funding may not be as hard to get as you think.pexels.com

ecuring funding can often prove to be one of the most difficult parts of founding a startup. Improve your odds of success by avoiding the above mistakes and doing some homework before the process begins. With a little preparation, you may be pleasantly surprised at what — and how much — investors have to offer.



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