Thinking out-of-the-box? Coming up with great ideas but you don’t have the cash for it? There is a solution to your problem- asking for funds for your ventures. Although it is a tedious process, there is no harm in trying your luck. Who knows you might be lucky and you can start with your business idea. One thing to keep in mind is to be open to rejection; not everybody will love your business idea. There will be negative comments about your new venture, but you must not stop working towards your goal. At the end of the day, investors would be giving you the money, therefore they want to make sure that they do not incur any losses.
CHOOSING THE RIGHT FUNDING OPTION FOR YOUR BUSINESS
Choosing the right funding option for your business is extremely important. Having a brilliant business venture but not the perfect funding source is the main reason why businesses do not start. Here is a list of funding options you must consider for your funding your venture:
Bootstrapping or self-funding is the most common funding source anybody opts for. If you are starting with your first-ever business, you will face a lot of hardships in finding investors. Therefore, you must try to fund your business yourself with your savings, or even ask your close friends and family for help. For anybody starting for the very first time with a business venture, family and friends are the best people to approach, as mostly, they tend to be flexible with the interest rate; neither are there too many formalities involved. It is a straightforward process than asking for funding from other investors.
However, this funding source is not a viable option for all the funding requirements of your business. The amount is usually enough to look after the initial investment of your venture only. If your business requires money right from the first day, then this will not be a viable option for you in the long run.
The second-best option for your business venture is crowdfunding. It allows you to accept funds from more than one person simultaneously. Crowdfunding works differently than other fundings. It requires you to add a detailed description of your business idea on a crowdfunding platform, and then various investors can read the description and contribute money towards your business venture. Those investing can either give a donation or promise to pre-buy your products, depending on what they choose. You must share your business idea and goal by giving a detailed description on these platforms, to convey your business idea to the people who can contribute to your idea.
Crowdfunding is not just a platform for generating funds; it can even serve as a platform for marketing your products or business idea. By disclosing your business idea to these contributors, you can judge to find out if your product or business idea will be well received by the general public or not. Thus, it can help you decide if you want to continue with your current business idea, or shake up things, or drop the idea completely. Furthermore, it can even help you to grab the attention of a big venture-capital investor, who is swooned by your business idea.
However, if you do not earn enough funds through crowdfunding does not mean that your business idea will not be well received by the general public. As the crowdfunding platform is very competitive, your business idea might not be able to receive the attention it deserves. It is a bit unfair for the entrepreneurs to be judged on a few images and some text, as the investors cannot see any product demos.
3. Angel Investors
If your business setup does not require a big investment, then you must consider angel investors. They usually fund the business during its startup phase, and they even offer mentoring services for entrepreneurs who are just about to start with their business venture. Angel investors usually expect equity for unto 30%.
4. Venture Capitalists
Venture capitalists invest in those business ideas whom they feel have a lot of potentials to go big. They thoroughly evaluate the scalability and sustainability of the business before they take a plunge. They invest against equity and exit whenever there is an IPO or an acquisition. Since venture capitalists are willing to fund a big amount for your business, they are a better option for businesses that have already established themselves in the business world.
With the bigger funds comes the problem of recovering the funds in a period of 3 to 5 years. Thus, if your business idea will take a lot of time to establish itself in the market, the venture capitalists will not invest in your business. That is why they see through your business idea so well; they work for their interest first, i.e. recovering the money within 5 years. For this reason, if they feel your business idea can be changed around to help recover the money quickly, they will force themselves down on you to make the changes they want.
5. Business Incubators and Accelerators
Incubators, as the name suggests, help to future the business till it can sustain itself on its own. Accelerators are similar to incubators, but they help the business to take a bigger leap. They help entrepreneurs in finding the right contacts the would be beneficial for their business. The duration of these programs is short; usually around 4 to 8 months. These connections are made between investors, mentors, marketing experts, etc.
6. Bank Loans
Banks provide two types of loans:
—Working Capital Loan
This loan is the loan required for the completion of one revenue-generating operation cycle, with the limit set by debtors and hypothecating stocks.
This requires sharing all the details about the business idea. The decision for funding is taken accordingly.
Banks have certain minimum requirements that you must fulfill before you qualify for a loan.
7. Win Contests
Winning contests is a challenging, but good way of receiving funding for your business idea. Al you have to do is prepare your product or business idea for the organizers conducting the competition, and wait to be elected. Due to so many entries for the competitions, it might be difficult for your business or product to stand out.
APPROACHING YOUR INVESTORS
Since the investors get approached by numerous applicants for funding, they are only willing to give you a bit of their time only. Therefore, when you approach them for the very first time, you should have all the main and important features of your business ready.
You must take the following approach before presenting your business idea to the investors:
1. Identify the niche of your product
You must know who is your target market; who will be using your products and gaining some benefit from them. Once you know this, then only you can work on your business idea.
2. Branding your product
Creating a color theme, a logo, purchasing a domain name, etc. give professional touches to your product. It also shows your investors that you are very serious about your business idea.
3. Creating an Elevator Pitch
Since the investors do not have all day for just one entrepreneur, they opt for elevator pitches. An elevator pitch is a summary of all the important features and aspects of your business, particularly emphasizing the fact that how your business plan is different and unique from your competitors. Investors would like to invest in something that is not there in the market. If the investors are impressed with your elevator pitch, they will call you for a second meeting, where your business plan will be discussed in detail.
4. Creating a Pitch Deck
The pitch deck is a presentation of not more than 15 slides, talking about your business idea in great detail. This presentation should have a lot of visuals and limited text. You must not read out the text from the slides as the investors can read that themselves. Your script should be descriptive and should explain to the investors your app idea in detail.
If you have a product demo ready that would also give a professional and serious look to your business plan in front of the investors.
STAGES OF FUNDING
Funding can be done during the various stages of starting with a business plan. Stages of funding are known as funding rounds, and they refer to the business idea as a seed.
These funding rounds are:
1. Pre-Seed Round Of Funding
This funding starts with your close family and friends who are willing to help you out with your business venture. The funds from this round are used in the initial research and getting things started off the ground. If it does not involve close family and friends, then it is the founders themselves.
2. Seed Round Of Funding
This funding is used in the growth of the business, to help determine what the final product will look like and how the target market will perceive it. This funding usually comes from angel investors.
3. The Series Round Of Funding
The series round of funding usually involves funds that are used to make the product even perfect for the users. If you have reached this level of funding, then you would be delighted to know that your product is successful.
Getting funds for your new business venture is not as easy as it seems. It involves a lot of rejection too, which you should not take to your heart. Apart from investors, there are bank loans available too, and are good options if you cannot find yourself a good investor. However, once you have found the perfect investor for your business, you need a reliable team for marketing your business too. DigAptics is a dedicated team of professionals, who work closely with their clients, to understand what their goals are. Then they implement all the relevant strategies to your marketing campaigns, to help you achieve the desired goals. Contact them today to get a free estimate for your business.