Business Startup Without Capital - Part2 - Raising Money

In Business Startup Without Capital – Part1, you’ll see the importance of developing your business idea and establishing your customer base prior to raising money. Most of the groundwork performed to start a business requires hard work, not capital. But now you’re ready to start raising money for your startup. So what are your options? What are the best strategies to acquire capital?

Start by being prepared

What are your market conditions like? If you can answer YES to one or both of the following questions, you’ll be ready to THINK about raising money.

Is your target market small but with great potential to grow?
Is your target market large but with product differentiation, you’ll stand out?

Next, you must answer “Have you already amassed an excited target market for your product?” This question is particularly important. It’ll show whether you’ve done your pre-startup groundwork covered in Business Startup Without Capital – Part1. If your answer to this is NO, then it’s time to STOP thinking about raising money and START hustling.

Are your products protected?

Patents, trademarks, design registrations and copyrights will all protect your products and services. Be sure to have those in place ahead of time. Along with providing protection, they’ll also increase the value and appeal of your startup before you begin raising money.

NDAs (Non-Disclosure Agreements)

Take further precaution by using NDAs. These are legal documents to be signed by those whom you disclose information. NDAs will protect you against the use of your proprietary information without your consent. And they can go both ways. NDAs will also protect those you interact with when they disclose THEIR proprietary information.

Provisional application

Patents are expensive and involved. Consider submitting a provisional application in the beginning. There is no such thing as a provisional patent, but a provisional application will protect your invention for one year for a small fee ($260 in 2014). You must file for a non-provisional patent within that year in order to benefit from the earlier provisional application filing date, so keep that in mind.

Wolves in sheep’s clothing

Be sure to research the background of those to whom you disclose information. Most people are trust-worthy, but sometimes you may encounter a wolf in sheep’s clothing, as the saying goes. If you verify that they have the trust of others, you can relax a bit. But always be careful with your proprietary information. You never know when someone will try to steal it from you.

Show how well you protect your products to make your startup more attractive to investors when you’re out raising money.

Are you a great leader?

What’s your track record? Have you launched successful startups in the past? Of course the answer to this is probably “NO.” So what else have you led to success? Whether you’ve led successful projects for a previous employer or you’ve coached a winning sports team, these all count. Use your past successes as clout when raising money.

Failure – the function of achievement

How well do you deal with failure? This is a big one. We all fail! And successful entrepreneurs use their failures as stepping stones.

“Dreams don’t come true without a lot of failure.” – From Walt Before Mickey

Failure is a function of the achievement process. Can you present your failures as opportunities which you’ve captured? Show how you’ve learned, grown, and succeeded after your failures. Your integrity as a leader will really shine through.

Think like an investor

Now, train yourself to think like an investor. Get to know them and network with them. Study literature about venture capitalists just as if you wish to be one. What you learn will truly benefit you when you’ve begun to start raising money.

Raising money

Now that you’re fully prepared, start raising money. But where do you start?

Start by listing those whom you know to have money. Most entrepreneurs start here. And this is a good way to practice your pitch. Even if you can only raise a portion of the capital you need, it’ll make a difference when raising money from other sources. The more money your startup has in the bank, the more valuable it’ll be on paper.

The stages of investment

Investments are categorized based on the maturity of your startup. They’re based on risk. The earlier, the riskier. Investment stages are also based on potential reward. The higher the risk, the higher the reward.

Seed capital

The first stage of investment is called “seed capital.” This money may come from family and friends, or from an angel investor. Seed money comes from people who believe in you and what you’re doing.

Seed capital investors typically base their judgement on passion more than what value they see on paper. This stage involves the highest level of risk. So hopefully you’ll provide your seed capital investors with the highest reward after you achieve success.

Seed money usually funds your preliminary efforts such as research and development. It’ll also fund your early marketing efforts as you build your brand and develop your target market.

Venture capital

Raising money through venture capital usually occurs after your startup has been launched. It may be prior to your profitability. This money is typically used for early growth and expansion. It may also be used to rescue your startup after set-backs.

Venture capital comes in exchange for equity in your company. So be very careful with this stage of investment. Hold on to as much of your startup equity as you can.

Series A, B, and C investment rounds

These stages of investment rounds are for later, larger-scale funding of company growth and expansion. The size of each investment round typically grows exponentially as you go from series A to series C. If you’re at this point, congratulations! You’ve already launched a successful startup and you’re moving up in the world!

Crowdfunding

I can’t write about raising money without mentioning crowdfunding. This is where many people each donate or invest a small amount of money through one of the many crowdfunding platforms.

Raising money through crowdfunding is not easy. It requires and well-planned and well-executed campaign. Most crowdfunding campaigns fail, so use your due-diligence if you plan on raising money this way.

There are quite a few great articles about crowdfunding. Here are three of them, one from Forbes and two from Entrepreneur:

The Myth Of Magical Crowdfunding — And What Actually Works

Crowdfunding Can Be Really Effective — If You Know What You’re Doing

How to Prepare an Effective Crowdfunding Pitch

Final advice

Make sure you’re reasonably crazy, at first. Your passion will shine through.

Offer value before you ask for anything from anyone. As an example, provide potential investors with industry information which will satisfy their interest. This is the same philosophy used in content marketing.

Count how many times you’ve had contact with your potential investors before approaching them for raising money. Initiate four to five separate interactions before popping the question. Then, they’ll know you and will be comfortable interacting with you.

Be prepared!

Thank you for reading: