What is one fundraising tip you’d offer to an early-stage startup?
To help you successfully raise funds for your early-stage startup, we asked accomplished startup founders and business owners this question for their best insights. From getting help from incubator or accelerator programs to being clear about your investors and their terms, there are several tips that may help you raise sufficient funds to launch your startup venture successfully.
Here are 10 fundraising tips for early-stage startups:
- Get Help from Incubator or Accelerator Programs
- Raise Cash Way Before You Run Out
- Raise Capital During the Busy Season
- Don’t Take the First Offer that Comes Your Way
- Iron Out Kinks in Your Business Pitch to Avoid Underselling Yourself
- Ask for Amount of Money Appropriate for the Stage You are in
- Build a Large Network of Investors
- Seek Grants and Funds for Small Businesses
- Run Your Idea by Friends and Family and Try Bootstrapping
- Be Clear About Your Investors and their Terms
Get Help from Incubator or Accelerator Programs
Incubation or accelerator programs provide funding, mentorship, and resources to help startups grow their businesses. These programs can be a great option for startups that are past the ideation stage and are ready to start scaling their business. Many incubators and accelerators also offer workspace, which can be beneficial for early-stage businesses that are still in the process of setting up their operations.
Marc De Diego Ferrer, MCA Assessors
Raise Cash Way Before You Run Out
Don’t wait until you’re broke to start raising capital. Research from CB Insights found that 38% of startups that fail do so because they ran out of cash and were unable to raise more. It’s important as an early-stage startup to avoid the dangerous situation of scrambling for cash last minute. With fewer profits to fall back on, the cushion is particularly thin. The best way to avoid this situation is to make sure you’re raising money well before you’ll run out. I’d recommend tracking your budget and then starting to raise money six to nine months before you’ll be out.
Lisa Odenweller, Kroma Wellness
Raise Capital During the Busy Season
Be mindful of the cyclical nature of your industry, and choose the best times to raise capital. Venture firms tend to avoid investing in August, December, and the later half of November and July, so if you have a great startup idea during those months, it may be better to sit on them until the dead zones are over. Coordinate your growth with your industry’s busy times. Pitch investors and build funds 3-6 months ahead of busy seasons to leave enough time for negotiations and preparations and enter the season with a strong growth strategy.
Ruben Gamez, SignWell
Don’t Take the First Offer that Comes Your Way
Funding rounds are exciting, and it can be easy to jump onto the first offer that comes to the table. But, you need to think, are the people (or person) investing in my business really going to resonate with my vision, or are they just looking for a paycheque when we exit later down the line? Remember going into this why you’re doing fundraising, and what types of investors you want to obtain e.g. silent or active partners. Decide on the level of input you’re going to require (if any) and make your external funding decisions based on who fits that role.
James Taylor, Digital Tool Report
Iron Out Kinks in Your Business Pitch to Avoid Underselling Yourself
Prior to engaging investors, it is crucial for entrepreneurs to conduct founder identity and business evaluations. Be brutal and be honest. Hit all your below baseline points ruthlessly, so as to recognize any knots in your company or personal database. Startups and innovators must do a market analysis to comprehend the current situation your proposed business finds itself in and also to be able to predict future outcomes.
Give a detailed analysis of how your colleagues and rivals are faring, and be able to compare their stages of development in order to construct a threshold you can disrupt.
Without being socially, politically, developmentally, and financially conscientious, there is always a risk that founders can undersell themselves and settle for a bad bargain because of missing out on key trigger points from prospective investors. Improper assessment by startups can damage their future rounds of investment.
Evan McCarthy, Sporting Smiles
Ask for Amount of Money Appropriate for the Stage You are in
Ask for the appropriate amount of money for the appropriate stage you are in. Let’s be real if you’re fundraising for your startup and you ask an investor for a lump sum of million dollars so you can go off and make your life-changing mobile app, that’s a pretty big ask. You need to go step by step when you’re fundraising for your startup, so your funders can feel involved and valued.
For example, look at what you need to get you to your next big milestone; how much money do you need in the next 12-24 months? Do you need seed money so you can build your product and get it into the market? Raise that amount, make that product and celebrate with your funders! Show them what their money did and why they’re important – maybe they’ll want to put in more? Invite your funders on the journey with you, and let them experience what it’s like to build a company and product from the ground up – they’ll feel so special!
Karim Hachem, Sunshine79
Build a Large Network of Investors
Start building your network of investors as early as the idea of building a revolutionary app crosses your mind. A study from Chicago University’s Booth Business School states that the network is the best asset of the entrepreneur. LinkedIn, Facebook, and WhatsApp are the top three social networks you use to make connections with investors for free.
Being a part of startup communities like Y Combinator, the world’s premier startup accelerator, can help build social connections, share advice, and find the right investor for your project. A chain of “friend of a friend” connections can wider your fundraising opportunities. VCs know lots of people and have vast networks that can open more doors and help find not only funds but also new customers. Building a large network is easier than keeping the relationships alive.
Tatsiana Kerimova, ODG
Seek Grants and Funds for Small Businesses
There are many grants and funds for small businesses that can really help a business stand on their feet without paying money out of their own pockets. By doing a bit of research, you can find grants, rewards and programs available to help small businesses in certain fields that can help give you an initial push and raise a capital to make your idea come to life. In order to do this, you need a strong business plan, do the research necessary and explain how beneficial your startup will be to get the funding you need.
Nicole Thelin, Low Income Relief
Run Your Idea by Friends and Family and Try Bootstrapping
Run your idea by friends and family and think about bootstrapping. Traditional fundraising can ultimately leave you in a worse position with high-interest rates and other repayment penalties. With bootstrapping you have a supportive team behind you. You can work out a plan to reimburse them together, which will likely be more reasonable. Fundraising in an early-stage startup through bootstrapping can be less stressful and safer financially.
Colette Shelton, Chirpyest
Be Clear About Your Investors and their Terms
Not all money is good money. When thinking of taking money in the early stages of a startup, it’s good to know who you may be working with and under what terms they want to invest. While you may like the person that is looking to invest, without knowing what terms or stipulations it would take to make happen could put you in a rough spot. By understanding these two things, it will ensure you can work well with the person and limit conflict when deciding what direction the company should go in.
Scott Annan, MyCube
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