Entrepreneur, Startups

Raising Funds for Start-Ups

A new entrepreneurial journey can be pretty unnerving especially during fundraising. With dynamic changes and formalisation of the economy, start-up businesses have to avoid traditional bottlenecks like inconsistent balance sheets, and lack of collateral, or detailed business plans, or financial estimates for business cyclicality or preparation around fund requirements.

An entrepreneur must own his/her business plan, analyse capital movements and investor requirements, be ready to answer the tough questions from investors and create a strong and structured organisation with capable people who will deliver under adhered timelines.

Before considering fundraising, an entrepreneur must consider budget planning for a year, the kind of funding one should seek and who the ideal investor should be. Funding can come from many sources – family, winning at pitch competitions, working capital loans, bootstrapping and even revenue for regular operations.

 The nature of funding varies from business to business and the stage of the business is critical.

Why raise capital?

A start-up business is meant to grow fast. Such high growth companies nearly need to burn capital to keep the wheel of growth moving before achieving profitability. Some start-ups prefer to bootstrap (self-fund) themselves. All start-ups entrepreneurs must introspect and decide how fast they want to grow which will determine whether funding is required or not.

When to raise capital?

Every new entrepreneur must know that investors will lend them an ear only if they have a very compelling idea backed by a fantastic founding team and a realistic business vision. The market opportunity has to be real and sufficiently large enough for entrepreneurs to give that product/service in terms of customer adoption.

How much to raise?

Fundraising is primarily done to check market feasibility and scope of growth for a product/service. When negotiating a fundraising amount, an entrepreneur should consider the kind of progress one is looking at, if the funds raised will be sufficient for growth and profitability or there would further rounds of capital or equity dilution one may be comfortable with. Ideally, an entrepreneur should look at raising an optimal amount of fund in the first round which will help one decide how many months of business operations can that take care .

There are no mathematically accurate answers to any of the above. But a few thumb-rule fundraising lessons don’t hurt.

  1. A new entrepreneur must ideally have an appropriate business name that should ring well with employees, business partners, investors and potential customers.
  2. A ‘NO’ from investors is not the end. It means still following up with updates, calling them and continuing to work because you believe in it.
  3. An entrepreneur should not compare with other businesses. An entrepreneur should cut the noise and baggage around what others think about them or their business acumen, or what they can/should do against their success or lack of one.
  4. A new entrepreneur should make informed decisions when raising capital. They should spend more time acquiring customers than attending meetings to acquire debt.
  5. A new entrepreneur should take time to celebrate their assets and resources, customers and teams, community and revenue.



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