Leveraging collaborations for startup financing is one of the most critical skills founders must learn. Building a new company from the ground up and raising funding is super challenging, but getting the right partnerships helps.
Whether you collaborate with established brands or upcoming startups, you’ll find that they not only contribute to long-term success. But you’ll also find it easier to acquire funding from investors.
Strategic partnerships can act as real drivers that add credibility to the startup and enable funding even without robust financials. But does that really work? Check out these statistics.
The success rate for startups across all industries is just 10%. This means that 90% of new ventures are likely to fail within the first 12 months. However, partnering can raise those odds to 30%, thanks to improved growth rates and an exchange of ideas and expertise.
These benefits also contribute to more effective fundraising. That’s because investors are more likely to support ventures that have entered into corporate alliances.
Read ahead for more information about the partnerships you should leverage to ensure sustainability.
The Ultimate Guide To Pitch Decks
Leveraging Collaborations for Startup Financing – How to Execute Alliances
Before identifying the right partners for their startup, entrepreneurs should be clear about their goals and objectives. They should also have a handle on what they hope to achieve from the collaboration. Of course, funding should be one of their primary concerns.
Accordingly, you’ll look for companies working in your industry and space. If the potential partner manufactures complementary products, you could share marketing and advertising strategies and logistics. Offering customers package deals improves conversion rates because of the competitive pricing structure you can offer.
You’ll also ensure that the partner has resources you can leverage, such as core talent, technology, and physical assets like premises, tools, and equipment. Most importantly, ensure that the partner’s mission, vision, and culture match your own.
Next, explore whether you can enter into a long-term alliance and if you can meet the partner’s needs. Partnerships are successful only if they are mutually beneficial.
Once you have these criteria addressed, consider how the collaboration will look on your pitch deck. While company success is high on your list of priorities, that can only be achieved with funding. Not just at the early stages but with several rounds as the company reaches its milestones.
What Kind of Strategic Partnerships To Look For?
When leveraging collaborations for startup financing, you’ll explore the best available options and how they can benefit the company.
Vendor collaboration is about entering into deals with vendors who supply products and services to the startup. They could also be sources for inventory or other inputs you need to keep the company running.
According to the terms, you receive supplies without paying upfront. But you’ll cover the costs with a percentage of the revenues. Companies with assured suppliers are typically more stable and operate more efficiently.
Such partnerships reflect well in a pitch deck because investors see a steady inflow of resources but low production costs. As a result, the company’s cash flow is also more streamlined. That’s another positive that attracts investor interest.
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Such collaborations are exceptionally beneficial for assembly line startups. Or when your company needs components to build products.
You’ll enter into strategic partnerships with manufacturers who supply you with the parts you need. Instead of paying them in cash upfront, you’ll make payments with a percentage of the revenues.
Entering into manufacturing partnerships enables founders to scale their startups quickly. That’s because they invest fewer resources into product research and development.
You can also take advantage of technological advancements without investing your own money. Leave it to your production partners to deploy new equipment to deliver higher-quality components that will also improve your products.
A great example is Microsoft which has 95% of its commercial revenue sourced from its partnering businesses. Microsoft’s partner network is known to grow by an impressive 7,500 new partners per month. Remember that a pitch deck that indicates the startup’s scalability and stability is a great draw for investors.
Acquiring loans from banks or funding from a lead investor is the best incentive for other entities to take an interest in the startup. Once you attract that initial interest, investors get validation that your business idea has what it takes to grow.
This factor is especially true in the case of startups developing industry-disruptive and innovative concepts. Or companies that want to manufacture products that are capital-intensive and need high amounts of funding to manufacture.
As a result, any further funding rounds are more likely to be successful and may get over-subscribed. An added advantage is that you can negotiate for more favorable terms and conditions. And that includes less equity and lower rates of interest.
Partnerships with Venture Capitalists
Even if you have to offer equity for capital, that could be advantageous because you can access investor expertise. Venture capitalists invest in early-stage startups and offer them seed funding.
At this stage, founders are ready with their product prototype and have started manufacturing the first batches. Some startups may also have initiated sales and are earning revenues.
These startups need capital to scale quickly and can also benefit from all the other advantages VCs can provide. That includes assistance with setting up their infrastructure, streamlining production processes and hiring more talent.
New ventures may also need advice on marketing and advertising strategies and the opportunity to connect with investor networks. All these positives are made available along with capital.
Partnering with corporates for funding and support is another strategy for leveraging collaborations for startup financing. New ventures typically emerge based on innovative ideas and the objective of providing exciting new products and services to their customers.
Founders are not afraid to develop new groundbreaking concepts, but they may lack capital and expertise. Finding and targeting the right customer base and adopting appropriate advertising and marketing techniques are other areas where they may lack.
Partnering with larger corporate entities can help them fill in the blanks and get the assistance they need. As for corporates, their size and scale may hamper agility and their ability to pivot to new products, strategies, and markets.
Partnering with smaller ventures allows them to maintain their ongoing and successful business model. At the same time, they can invest in innovations that have the potential to grow quickly. But, without the need to invest in research and development.
Finding the right partners to scale your startup is a great strategy to attract investors. If you’re looking for more information on how to raise startup capital for your business, check out this video I have created. You’re sure to find it helpful.
Partnering with Incubators and Accelerators
Founders with exciting business ideas can consider signing up for incubator or accelerator programs. Although getting accepted into the programs is very challenging, once in, founders can get all the assistance they need.
Incubators and accelerators offer all the essential support entrepreneurs need, including workshops and physical premises, and tools and equipment. Founders can relocate to their designated sites and work on developing the product prototype.
Next, they can leverage capital, administrative assistance, and the opportunity to interact with their investor networks. Any other assistance they need with creating a business plan or training in creating a pitch deck is also available.
At the end of the program, you’ll present your pitch deck on demo day to real investors to get capital for your venture. Simply getting accepted into the program is validation enough that your idea has potential.
Yet another factor in your favor is that you’ll feature on their portfolio pages. Investors looking for viable business ideas to promote and support may get in touch with you with offers of capital.
Founders who are still finding their feet need expert advice every step of the way. Coming up with an exciting business idea that has the potential to become a unicorn is not enough.
You’ll need advice on creating a business plan, developing financials, raising funding, and setting up production processes. Entering into advisor partnerships is another strategy where you’ll leverage the experience that other entrepreneurs have acquired.
Advisors are typically founders who have built companies successfully and have exited them, walking away with a substantial profit. They have been in your shoes and understand the challenges you face.
You can partner with individual advisors or a panel of advisors in exchange for a board seat or stock options. Alternatively, you can choose to retain them on an hourly, monthly, or annual basis or as consultants.
Rely on these professionals to assist you with not just fundraising but also acquisitions and an effective exit strategy when you’re ready to sell the business.
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.
Benefits of Entering into Strategic Partnerships
We have touched on the key benefits of entering into mutually-beneficial alliances and leveraging collaborations for startup financing above. Here are some added benefits startups enjoy.
- Collaborating with established businesses offering complementary products gives you instant access to their established customer base. You can also piggyback on their logistics and distribution channels to reach and expand your markets.
- Investing in every operational aspect of starting a company involves substantial funding, which comes with risk and financial exposure. But, outsourcing manufacturing, inventory supplies, and marketing take away some of the costs. As a result, founders can focus and direct money toward their core competencies. This strategy disperses the risk, which is something investors like to see.
- Access to a tried-and-tested customer base and logistics gives you the freedom to explore new product ideas. This factor allows you to tap into multiple revenue sources that help with cash flows and stabilize the company.
- One of the key challenges entrepreneurs struggle with is gaining exposure and credibility for their brands. But entering into an alliance with a known and reputable brand gets you instant recognition. Customers are more likely to trust your products since they are backed by brands they know and trust.
- Human resources and core talent are other resources you can share with partners. Fill this knowledge gap by partnering with tech companies that can provide you with consultants or remote assistance without the need to hire in-house teams. This asset keeps the startup lean and allows you to cut back on HR costs for recruiting, hiring, and onboarding. You’ll also avoid offering them stock options and other perks and, thus, minimize the risk of dilution.
Challenges for Leveraging Collaborations for Startup Financing
Although entering into strategic partnerships is an excellent way to attract capital for your fledgling company, the process does come with challenges. Before entering into any deals, particularly for the long term, you may want to factor in the pros and cons carefully.
Here are some of the possible factors to consider.
- Before entering into an alliance, make sure you and the partner are clear about your respective objectives. For instance, if your goal is to pivot the company at some time, that might not sit well with a startup looking for long-term growth.
- Expect that your partner will conduct their due diligence when considering the collaboration. If that happens, you’ll reveal all company information, including the business plan and financials. You might even have to reveal product design or any corporate information that should not be divulged.
- Founders may want to explore the possibility of their ventures evolving and scaling to a point where the partnership is no longer an asset. Be prepared with a plan to exit the alliance if and when needed. You’ll also want to talk about how to manage the equity stake in that likelihood.
- Collaborations are rarely evenly shared. Chances are that one partner is the driver and is taking on most of the risks, responsibilities, and operational responsibilities. Such partnerships are usually hard to sustain.
What’s the Takeaway?
By leveraging collaborations for startup funding, you can acquire a strategic springboard that launches the startup instantly into the market. There are several advantages to this approach if you can overcome the challenges and resolve them.
Take your time identifying the right partners and how the benefits they bring to the table. You’ll also stay laser-focused on the potential downsides and be ready with an exit plan should you need one.
Once you have these aspects sorted, you can go right ahead and enter into strategic partnerships to propel the startup forward.
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