How to get private funding for your startup business?
Your startup needs funds to go live, survive, and continue to thrive. Private funding of one type or another is probably where much of your financial fuel will come from.
So, how do you get it? Where does it come from? What will it take to raise it, and how is that different from public funding?
The Ultimate Guide To Pitch Decks
Here is the content that we will cover in this post. Let’s get started.
- 1. The Need For Funding
- 2. Public Versus Private Funding
- 3. What Is Private Funding & Where Do You Get It?
- 4. Friends & Family
- 5. Cofounders
- 6. Grants
- 7. Startup Accelerators
- 8. Crowdfunding
- 9. Angel Investors & Angel Groups
- 10. Private Lenders
- 11. Venture Capital Firms
- 12. Private Equity Firms
- 13. Corporations
- 14. How To Get Private Funding For Your Startup
- 15. Attracting Inbound Attention & Investment
- 16. Outbound Fundraising Campaigns
- 17. Pitching Events
- 18. What You Need To Get Private Funding For Your Startup
- 19. A Really Big Market
- 20. A Strong Problem
- 21. Summary
The Need For Funding
Startup businesses require money. That is a need that never seems to go away.
Whether it is your own capital that you use to get set up and off the ground, or outside capital, it takes at least some money to start a company.
Even fundraising costs money.
Today, it is not uncommon for startups to go through Series C, D, E, and even later rounds of funding to stay alive and continue to grow.
Even once public businesses are bringing in more investor money. Exits are even often about putting more money into the company.
See How I Can Help You With Your Fundraising Efforts
See How I Can Help You With Your Fundraising Efforts
Once you start raising outside capital you are really committing to that path for the life of your company. Though it may come in many forms along the way.
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.
Public Versus Private Funding
Private funding is a very generic and loosely used term today. Many people and businesses apply it to different types of financing.
So, let’s first differentiate between public and private sources of money for your startup.
Public funding would be money that comes from the public in some way.
The most obvious example of this is when a startup has its IPO and sells its stock to the public in exchange for its cash.
Another classic example of public funding can be grants. This is money raised from taxes and funneled through various state, local, and federal organizations. Startups and existing businesses, all the way up to giant corporations, can benefit from programs like these. Including major tax breaks.
Some that might be in the gray area would be funds coming through public companies. Like banks.
According to Crunchbase, there are also now 330 public companies that act as venture capital firms. Such as Silicon Valley Bank (SVB). They can be great sources of private funding for your startup.
What Is Private Funding & Where Do You Get It?
Technically, private funding would be anything that isn’t coming through public sources. This leaves many choices.
Friends & Family
The first funding that you will typically bring into your business will come from your personal network. Those who know you, trust you, and like you best.
There are the least barriers to raising money from these parties. It can be the fastest, and easiest money you will raise. It will often yield the best terms.
This can be extended to friends of friends, and family of friends. Reach wide. You never know who might give you the checks you need to really have a fighting chance to get this going.
This may also be the truest form of private funding.
Cofounders can also be a source of private funding for your startup. If you are willing to bet everything on this venture, then those you bring along for the ride should be willing to give it their all as well. Including, putting in their own savings. Or even putting their personal credit on the line. If you have a tie for great talented individuals that you want to work with, then considering who will bring the most capital may be a factor to look at as well.
There are many private foundations, institutions, and individuals that can provide a range of grants, awards, and competition winnings. This can be powerful non-dilutive capital that does not require giving up any equity. It can also be a great badge of credibility that other investors will look at when they are considering funding your startup.
This type of funding can give you a great head start. Without too much pressure of debt or outside board members. Even more so in tougher economic times when the fundraising marketplace is drier than normal.
Startup accelerators are organized and funded in many different ways. They can be backed by governments, individual angel investors, and others. After the push, they give you to make progress, and the initial seed money that they can provide, these programs typically culminate in a Demo Day. This is when you present your results to a room of investors who are looking for startups to put their money into to take them to the next stage.
Given that some startup accelerators are even harder to get into than Harvard, this can be a badge of success and value that can carry a lot of weight with other private funding sources looking for quality ventures to back.
Crowdfunding has evolved a lot over the past few years. We now have donation, debt, and equity based crowdfunding. There are a huge number of crowdfunding platforms to pick from. Both giant public ones, and more niche platforms with smaller investor bases.
In its truest sense, crowdfunding is all about private funding. Raising money from individual private investors, and pooling that together. This has a huge number of varied benefits.
Today, many funds, banks, and other capital sources have jumped on this bandwagon, and are funneling their money through these platforms. There has been a lot more money going through them. Though the types of investors have changed.
Angel Investors & Angel Groups
When talking about raising private funding, many are often referring to what are commonly considered angel investors.
These are affluent individuals. They may have net worths ranging from millions to billions of dollars. There are a variety of reasons they invest in startups. As well as various levels of experience and value that they can provide.
These individual angel investors have increasingly banded themselves together into angel groups. Which are able to more efficiently manage deal flow and invest larger sums with lower risk.
This is another area that has evolved greatly in the past few years. This space used to be about individuals who would loan their money, similar to how angels may invest equity. Today, there are far more organizations backed by Wall Street capital that are calling themselves private money lenders. They offer a variety of business purpose loans and lines of credit.
Venture Capital Firms
Venture capital firms range greatly in size. There are now firms all over the world. They specialize in various stages of funding, business models, and industries.
This is still more institutional-level money. Which can be harder to get, and comes with a lot more paperwork, due diligence, and terms.
At the same time, it can provide your startup with access to a whole new level of resources. It will require giving up a sizable amount of equity and control. Though it can make all the difference in the potential your startup has.
Private Equity Firms
There are many similarities between venture capital firms and private equity. Private equity often comes in later and is more focused on the math, and financial transactions. Many may end up looking to acquire your company to add to their portfolio later on.
Again, these range from the new and small, to the super-sized.
Many big companies have strategic divisions which invest in startups. They may partner to help develop your business or see this as an inexpensive and less risky way to eventually acquire what you are making if it works out.
This can be true of both public and private companies. Including other startups.
Here you will be looking for alignment in your business, and what value the future of this relationship can bring.
How To Get Private Funding For Your Startup
There are three main ways to go about raising private funding for your startup.
1. Attracting Inbound Attention & Investment
Fundraising can be an expensive and time-consuming distraction from your regular work of growing your business. Some founders say that they spend 50% of their time on fundraising alone.
So, instead of devoting all of that to running a traditional outbound process, you may just want to double down on your work. Put up the numbers, generate the metrics investors are looking for, and run a profitable and growing business, and they will hear about it and notice.
This inbound attention can give you a lot more power in negotiating the terms of the funding you get.
2. Outbound Fundraising Campaigns
Today, most startups are focused on running an outbound process. Most are on a timeline. They need to put money in the bank on schedule. Before they run out of runway.
This involves various strategies of outbound pitching. Including email and social media. Using all of the now common tools of pitch decks and virtual data rooms.
3. Pitching Events
You can also get out there and hustle presenting and pitching your startup. This can range from pitching sessions at coworking spaces to participating in hackathons to getting on reality TV shows.
This is a great way to simultaneously raise a lot of awareness about your company and product while bringing in the money.
Even as you’re reading up on how to get private investors for your startup, you should also explore other sources of funding. Check out this video I have created explaining the other channels you can tap.
What You Need To Get Private Funding For Your Startup
Whichever way you decide to pursue private funding for your startup, you are going to want to have these fundraising materials and assets at the ready.
- Pitch deck
- Pitch script
- Business plan
- Action plan
- Marketing plan
- Investor updates
- Pitching and follow-up messages
There are three other key things that investors are going to be looking for in a fundable startup.
1. A Really Big Market
Today, some startups come out of the gate with a billion-dollar valuation before they’ve even launched or specified what their business is about. In order for that startup to be able to deliver 100x returns, you’ve got to have at least a $100B market.
2. A Strong Problem
The problem you are tackling is the very foundation of your venture. You can change and tweak just about everything else on the journey, but if you change your problem, you are moving on to a different business. Be sure you know the problem, you’ve verified it, and your investors will get it.
3. The Best Team To Tackle It
Ideas are plentiful, but what is much more rare and unique to each company is the quality of its team. If you want to win this space, you have to have the best team in your space. One that can work together, covers all the bases, and can execute.
Private funding can be a great way to give your startup the financial fuel it needs.
There are now plenty of different private funding sources. They are incredibly varied and include both debt financing and equity capital. You may end up using many, or even all of these sources as your startup progresses and scales.
Find the right one for the place you are at, get your fundraising materials in order, and then begin strategizing how you will fit the others into your capital stack.
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.