What are the top-most financial funding tips for entrepreneurs? Thinking about funding for your startup? Check out these top tips for how to get the money your company needs, and optimize how you do it.
Money is the lifeblood of every business. It is even more critical for startups. You are going into business to make money. In this case, it certainly takes money to make money.
Not only do you need money to start up a business, but it is highly likely that your company will continue to need more of it at regular intervals. This is definitely true for startups in their early years. Though it is often a need that never seems to go away for some companies. Even by going public, and beyond.
In fact, ensuring your venture has enough funds is really your number one, if not your only real job as an entrepreneur. So, here’s what you need to know in order to do that job well.
The Ultimate Guide To Pitch Decks
Know Your Options
Before you attempt to raise any financing or funding, you need to know all of your options. Otherwise, you are attempting to work at an extreme disadvantage to your competition. That is not a winning recipe.
There are so many sources of money for entrepreneurs and their companies. Each can have its pros and cons, and appropriate timing to be incorporated into your journey.
The more financial tools that you have at your disposal, the more optionality you will have, and the more profitable your venture will be.
These are some of the most common sources to consider and educate yourself on.
Equity funding is about taking in new cash capital in exchange for giving up shares and ownership of your company. You get new money in. You give stock to your investors. These arrangements often come with voting rights, board seats, and other preferential terms for investors.
In addition to bringing on valuable allies, the big benefit here is not taking on debt, financial repayment obligations, or expensive financing fees, which can strain your already financially fragile company.
Equity commonly comes from a variety of sources that startup entrepreneurs need to get to know very well.
See How I Can Help You With Your Fundraising Efforts
See How I Can Help You With Your Fundraising Efforts
This includes friends, family, and cofounders. This is typically where you get your first pre-seed money to capitalize on the business and get started.
This is normally followed by angel investors, and angel groups that provide more equity capital for early-stage startups. Often those still at the Seed stage, and pre-revenue. Though startup accelerators can also come into play around this time.
This is followed by VC firms with bigger amounts of capital. Then private equity firms, corporations, and then public markets.
If you’ve found the information so far interesting, here’s some added info you might like. Check out this video where I explain how rounds of financing work for startups.
Debt financing has its place in many ventures. It is especially prevalent for startups that are involved in financing their customers in some way or another.
One of the big appeals of debt for financing a business for many entrepreneurs is that it is non-dilutive funding. Meaning that you are not giving up equity and ownership in your company to get it. This can also make this type of money much cheaper in the long run.
As with equity funding, there are a variety of types of debt financing, and many sources of it.
For businesses with a history of performance and cash flow, this can include types of merchant cash advance loans. Including factoring, working capital loans, and business lines of credit.
SBA loans offer a number of options for different scenarios and stages of business, including for those suffering from natural disasters. These loans are provided through approved third-party lenders. It’s one of the crucial financial funding tips for entrepreneurs you should remember.
Other Types Of Funding For Entrepreneurs
There are other ways to cover your company’s financial needs as well.
Convertible notes are a hybrid option, which begins as debt, and then rolls over into equity later on. These are common with some types of early-stage investors, as well as startup accelerators.
There are several types of crowdfunding, which include the above, as well as donation-based crowdfunding.
Business plans and hacking competitions can be great for getting attention and raising credibility while vying for some financial rewards.
Similarly, many types of grants offer non-dilutive funding. They can be available at the state and federal level, for specific industries, and geo-locations.
Of course, one of the best ways to cover your financial needs is to get your customers to prepay for your services or product. Which is non-dilutive money that doesn’t need to be repaid either. Plus, you are proving your concept and demand for what you are building. These are the basic financial funding tips for entrepreneurs to keep in mind.
Understand The Benefits Of Bootstrapping Longer
While many entrepreneurs only jump into startups to raise big money out of the gate and find a swift and fabulous exit, there are advantages to holding off on taking outside money for a while. At least in some cases.
Bootstrapping is about staying lean, working with what you have, growing by reinvesting your revenues, and guerilla marketing.
It can certainly mean slower going sometimes. Not every venture can afford it. Some need many millions of dollars just to make their ventures viable.
Though, if you can manage to wait, there are at least two big benefits that are worth considering.
1. Retaining Control Of Your Company
As soon as you begin taking outside money, you are switching to working for their interests, on their schedule, and doing things to their tastes, not yours.
This can mean sacrificing your values, your real mission, and your customers. It can mean being pushed to make short-term decisions at the expense of what you wanted in the long term. It can even mean you no longer control whether you get to stay employed by your own company or not.
By holding off, you can make the decisions you see as best with product design, customer service, and growing your company in a sustainable way.
2. Getting Better Terms Later
The longer you hold off on funding, the strong position you can be in when it is appropriate to raise, and you are ready to really make the best use of that capital.
The longer you wait, the less of your company you may have to give up for the same amount of money coming in. You may also be able to negotiate much better terms if you have removed risks for investors, have proven more, or have even established revenues or profits.
If you really build a strong and valuable company in this process, with attractive dynamics, then you may also attract inbound attention from investors. Which can make the fundraising process easier.
Of course, there is also the risk that you don’t survive that long without the money earlier, or that you end up in a weaker position. So, keep these financial funding tips for entrepreneurs in mind, and you’ll acquire all the funding you need.
Don’t Underestimate Your Financing & Funding Needs
While some entrepreneurs do initially just strike out to raise the biggest sums that they can think of, many more likely underestimate their financial needs.
Everything in business takes longer than you think and costs more than you think it will.
Be sure that you are adding a significant cushion to your budgets, expense forecasts, and asks.
You should be able to justify this to investors and lenders and explain your math. Though you will not serve them well by asking for too little, and then putting it all at risk because you cannot deliver with the money you brought in.
Make Sure You Have A Fundraising Budget
While it may seem odd to brand new, first-time, aspiring entrepreneurs who are looking to bring in money for their startup ideas, it does take money to raise money.
In fact, it can cost quite a bit to raise money.
One of the most overlooked expenses in the fundraising process is marketing for your campaigns. This is especially true for strategies like crowdfunding. Even for other campaigns, you may do quite a bit of press, content publishing, and other activities to support your financial requests and elevate your business. Even processing fees for payments can take a couple of percent out of your total raise.
Even going out to pitch investors can mean covering expensive flights, and other travel expenses. Not all of these investor meetings will lead to a yes and money in the bank, either.
Pitch decks can be more expensive to create than many entrepreneurs realize as well. There are free pitch deck templates you can use. Though, there are also agencies that can charge tens of thousands of dollars for these services.
Legal costs alone can easily run into the six-figure range depending on what types of filings you need to make.
Then don’t forget any equity you may give away on the journey to bring in great advisors and team members to position your company for funding.
This is all in addition to being able to financially support your business until you close the round and get the money in the bank. Which means keeping it growing fast, not just surviving.
Start Raising Early
The time to start seeking more money for your startup is not when you need it. It is far in advance of those needs.
It takes a lot longer to put money in the bank than most entrepreneurs anticipate. Some end up pitching and doing meetings for over a year before that land investors. Then there can be months of due diligence and paperwork before the deal is really closed and funded. Of course, there are exceptions that are must faster. Yet, if you are not prepared, you may go out of business right before getting that check.
Even bank loans and grants can take longer to underwrite and close than anticipated.
Many do not factor in all this time for preparation before going live with a campaign, as well as how long the process will take.
Keep in mind that in fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Raise Before You Need It
In addition to giving yourself enough time to raise, you also need to be putting that money in the bank before your actual needs.
Each day can mean that you are running out of runway. Being desperate is not a good place to be raising from. Investors and lenders can smell it on you.
It also means that you will be pitching and negotiating from a position of weakness. They’ll know that you have to put money in the bank on any terms they offer or give up your dream and everything you worked for.
Many also do not anticipate changing capital markets. In some phases of the market, it is very easy to raise money, and raise a lot on attractive terms. Investors can be desperate to deploy capital. At other times it can seem nearly impossible to find the money. If you do, it will be harder, the expectations of investors will be much greater, and you’ll get less money, on worse terms.
It’s better to put extra capital in the bank and have it to get you through these periods.
To accomplish this, you’ll need to be out there networking as much as possible. Months or years in advance of needing to ask those investors for money.
Know The Three Most Important Things For Investors
As an early-stage startup, the most important slides in your pitch deck are going to include:
- Market size
As a later-stage startup, your investors may prioritize revenues, consistency, and profits.
Be sure you are armed with a highly effective pitch deck when you get out there. And, be sure to include these financial funding tips for entrepreneurs.
You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.