‘Run or die!’ – How can a startup survive the valley of death?
There is nothing sexy about being a startup entrepreneur when your TV is in a pawn shop and you’re living on coffee in your mother’s basement and burning the midnight oil night after night.
“Amazing idea!” celebrated an angel investor
“We are definitely interested,” a VC said.
“We’ll get back to you next week,” a fund promised.
And they all said the magic word: “MAYBE.”
A ‘Maybe’ is not a ‘NO’. That’s how you comfort yourself and keep going. But a ‘maybe’ does not pay the bills. Weeks pass. Your amazing idea that everyone loves is about to fizzle out without funding. But none of the ‘maybes’ are turning into ‘yeses’.
Welcome to the Valley of Death.
Any entrepreneur knows that sufficient funding is the backbone of a start-up’s business success. The process of acquiring enough funds can be more complicated than it sounds.”It is estimated that 90 % of startups fail, and one of the main reasons is lack of funding.”
In many cases, funding can make or break a start-up. And while the process of acquiring funds may seem daunting at first, there are many options available. You could go the old school route and secure a loan from the bank. Or you could try the more modern option of crowdfunding online. All of these are viable options to ensure you have enough money to lift your business off the ground.
Fundraising Options for Start-ups
Many remote fundraising options exist, but not all options will be right for you. Here are some options for you to explore.
Find an Angel Investor
An Angel Investor is a person or group of people with substantial funds and a willingness to invest these funds as capital into your business. An angel investor will want to scrutinize your business proposal and understand the ins and outs of your future plans. They can also offer mentorship on certain business problems and might help to strengthen your plan, generating larger future profits.
Find a Venture Capital Fund
In 2015, a brilliant idea attracted the attention of the Silicon Valley Venture Capital crowd and by May of that year, $100 million was invested into making the idea a reality. This was, of course, Uber. Uber was a simple yet brilliant start-up with great growth potential – and it was spotted by the right people at the right time. Venture capital funds are managed by business experts who have a keen eye for large growth potential. Once partnered with the business, they pull in other investors to grow the business even more. They also offer mentorship and expertise that can drive your profits further than you could have imagined. The downside? They tend to want proven levels of business stability, and if your business does not have this, they are unlikely to invest.
Crowdfunding is another option, and now it’s more popular than ever. Platforms like FundedByMe MENA are a fantastic way of raising funds if other avenues do not feel suitable. The aim is to pitch your business to the general public, giving them reasons why your business is needed right now. Any private person or major investor can donate to your business through platforms, and results vary depending on how much interest your business gets.One example of crowdfunding success is that of 3Doodler, a product that allows people to draw in 3D. In the first 34 days of crowdfunding, they raised more than $2 million.
There are thousands of crowdfunding platforms, each offering slightly different terms. For example, FundedByMe MENA uses two kinds of crowdfunding campaigns: public and private, which are mainly targeted to major investors, and some sites take an ‘all or nothing’ approach, expecting you to meet your milestone in order to receive your funds. Other sites offer some flexibility on how and when you withdraw funds from the site. It is good to investigate the terms and conditions of multiple crowdfunding sites before committing to one.
If you cannot find an investor and do not think you’ll be eligible for a bank loan, you can access capital via microfinance. When using microfinancing you dodge banks entirely and gain funds from micro-finance institutions like Non-Banking Financial Corporations (NBFCs). These institutions are more likely to give you funding if you have poor credit or limited assets. While the loans are modest, they may be all you need if you have a smaller start-up.
Family and Friends
If none of these options seem to be working out for you, you could ask outside your professional networks, instead of turning to your personal connections, your friends and family. This can be a great option because it’s faster and easier than attracting angel investors or securing loans. Your friends and family will also be investing in you because they already know and trust you, and by extension your cofounders. This gives you and your co-founders more control over decision-making at an earlier stage, but you do have to take into account that unless your friends and family are experienced investors or in banking that they may be less familiar with certain investment principles such as dilution, which will be important if you need to attract bigger investors moving forward.
Get out there and secure funding for your start-up
Now that you are aware of the options available to you and know more about the process you must go through, it’s time to get out there and secure funding for your start-up. Don’t let your business be one of the 90% that fail before it’s had a chance to flourish. Proper funding is the building block you need to achieve optimal business success. Here are three initial steps that you can take today:
- Decide how much funding you realistically need. You might find it easier to map out the next 3-5 years of business activity you want to achieve and cost each one individually.
- Research the best type of fundraising for your business. The amount you need to raise and the terms you’re willing to settle on are important factors for consideration.
- Draft out an initial business funding proposal explaining what your business is, why you need funds and what your business goals are. It might help to write a couple of drafts before settling on one. You should also ask a friend or colleague to proofread this.
- Get ready for due diligence. Being ready gets the money to your bank account faster – and helps you to defend your company’s enterprise valuation –meaning more money for less shares!
DD-Ready is the smartest and largest due diligence ecosystem in the world. It ensures start-ups and scaleups close funding rounds faster. To learn more about DD-Ready, click here to sign up for a demo with the DD-Ready team.