Starting a business is a challenging but rewarding experience. It requires a clear vision, a strong work ethic, and the capacity to access & utilise resources. Funding is one of the most crucial resources for any business because it can support realising an entrepreneur’s dream. In their pursuit to raise money, aspiring business owners frequently face obstacles that may appear only with a well-thought-out plan.
The major parties financing a business are the company’s owners looking for capital and the investors ready to lend it. Investors often finance enterprises because they are confident in their ability to succeed and hope to profit from their investments. As a result, most investments are set up to provide the investor with a stake in the company. This article looks at the many funding options; the obstacles business owners must overcome, and the clever tactics they may use to secure their projects’ finances.
Levels of Funding
A typical startup passes through the following funding stages as it develops.
1. Pre-Seed Funding: Bootstrapping Your Idea
The stage of preparations for launching a startup operation is one of the most crucial stages. It entails funding the company on one’s own, whether through credit cards, personal savings, or even donations from family and friends. Because the company is still in its early stages and has no guarantee of success, pre-seed capital carries a significant risk. However, it’s a crucial first step in building a successful business. This stage aims to help the firm transition to the next growth stage when it can secure seed funding and create a more organised business plan.
2. Seed funding: Developing the complete product
Seed funding is the initial formal equity funding stage. With stable revenue and a well-crafted business strategy, it enables the company to establish a strong market presence and unlocks opportunities for future growth. Potential funding sources at this stage include angel investors, incubators, accelerators, crowdfunding, etc.
3. Series A, B, and C funding: Scaling to new heights
For startups on a trajectory of expansion, series funding rounds (Series A, B, C, and so on) are conducted to secure additional capital as the business grows. Venture capitalist firms usually lead these rounds and usually involve substantial funding.
Series A offers significant funding to expand operations, create new goods and services, recruit more workers, allocate money to marketing and sales campaigns, and increase the number of clients. Then, it is followed by series B rounds, which aim to advance companies beyond the development stage. Series C funding applies to companies already striving and needing additional funding to enter new markets or acquire other companies.
4. Initial Public Offering (IPO): Expanding the horizon
Not many startups have this as their ultimate objective. For a select few startups that have achieved substantial growth and success, going public through an IPO represents the ultimate level of funding. An IPO offers company shares to the public, allowing the general public to invest in the company. Going public raises significant capital and enhances the startup’s visibility and credibility in the market.
Few challenges in fundraising
While obtaining finance is essential for a startup’s survival and expansion, entrepreneurs encounter many obstacles in fundraising. Among the common hurdles are:
1. Securing early-stage investment
Early-stage startups often need an extensive track record, making it easier for investors to assess their performance and potential. With a track record, it is easier to gain someone’s trust. Another challenge at the early stage is figuring out the right investor for your startup. Many startups need to take the time to learn about them and their funding criteria to reach out to any investor they can find.
2. Effective pitching
It can be challenging to create a persuasive pitch highlighting a startup’s unique value proposition, potential, and the benefits it offers investors. To pique investor interest, a well-crafted pitch deck is crucial. Many startups place too much emphasis on their current operations and fail to convey their long-term goals. Investors will be curious about how you use their money to advance your business. Another reason many business owners need help to draw investors is the need for precise scalability of the business model.
3. Valuation Negotiation
Determining the startup’s valuation is a delicate balancing act. Entrepreneurs aim for a higher valuation, while investors seek equity at a lower price. Negotiating a fair deal is essential for both parties, where striking the right balance can be challenging.
Some Strategic Solutions
Entrepreneurs can employ a variety of strategic methods to address these issues and effectively raise money:
1. Develop a Reliable Business Plan
A comprehensive and well-researched business plan is crucial for attracting investors. It should outline the startup’s mission, financial projections, and growth strategies. Conduct in-depth market research to identify pain points, target audiences, and potential competitors. Demonstrating a clear understanding of the market enhances investor confidence.
2. Connect with the investors’ network
Connecting with potential investors and gaining access to the right networks can be challenging, especially for first-time entrepreneurs. Joining startup incubators or accelerators, startup summits can offer access to mentors, industry experts, and potential investors. These programs provide invaluable guidance and support during the early stages. Developing solid industry networks might help you connect with investors by making valuable introductions. Taking part in networking sessions, pitch competitions, and conferences can result in successful connections.
3. Develop data-driven valuation and negotiation skill
Thorough research is vital – understanding an investor’s portfolio, investment preferences, and past engagements. To arrive at a reasonable valuation, leverage data, market benchmarks, and comparable deals. Transparency and honesty are essential during negotiations. Sharpen your negotiating skills to strike a mutually beneficial deal.
Concluding Thoughts
Resilience and persistence are instrumental to raising and successfully implementing funds for a startup. Entrepreneurs often face multiple rejections before securing funding, testing their patience and determination. This persistence challenge can be emotionally draining, leading some entrepreneurs to doubt their venture’s worth. Keep pushing forward with your goals and use every negative feedback to enhance your strategy and pitch. Ask for feedback, recognise your shortcomings, and keep improving. Ensure you have a strong network of people who can help you, such as mentors, other businesspeople, or advisors.
Fundraising rarely results in overnight success
Different cultures may have different funding practices. Mehedi Reza, co-founder of Bangladesh’s first bicycle rental business, Jobike, shares that compared to other nations, Bangladesh requires more institutional investors like venture capital firms. Because of their limited availability, startups may have fewer options to obtain considerable cash. Due to severe legal and infrastructure restrictions, the nation may need help luring foreign investors. Mr Mehedi continued.
Author- Hridita Islam
