Whenever people talk about finding funding for a startup, the recommendations are usually impractical for early-stage operations. Venture capitalists, for instance, tend to avoid funding prototypes or early-stage startups.
When VCs invest in a startup, they like to do their due diligence and monitor it carefully. Most of the time, early-stage startups aren’t worth their time unless industry-changing potential exists.
When it comes to early-stage startups, it can seem like a bleak and depressing picture. Start-ups are created every day, and the competition is intense. Thus, entrepreneurs are confronted with the big question.
How do you find funding during the early stages? Well, that’s precisely what we will look at today.
1. Make Your Startup Objectively Attractive to Investors
Ultimately, optics are everything. Sometimes, just having a great idea, concept, or prototype isn’t going to cut it. You want to ensure that you sculpt your startup into something that investors want to take a chance on.
Theranos was a good example of how optics can be all you need. Theranos was founded in 2003 by Elizabeth Holmes, a nineteen-year-old teenager. By 2004, her company had managed to raise close to $7 million. Of course, we now know the whole thing was a sham. The revolutionary medical breakthrough that she promised didn’t exist.
Still, that didn’t stop her from raising a total investment of $724 million and receiving a $10 billion market valuation.
Regardless of what you feel about Theranos, you have to admit that the saga was a masterclass in fundraising. It is fascinating to study what attributes make a startup attractive to investors.
Demonstrable aptitude, leadership, communication skills, and expertise are what investors scan for. Holmes, who dropped out of Stanford, clearly knew how to play the game.
As an entrepreneur, you should be crafting an image that shouts expertise, trustworthiness, and immense potential. You don’t want to come across as yet another inexperienced startup owner whose desperation can be sensed a mile away.
2. Turn Cashflow Management Systems Into a Trust Builder
One of the biggest challenges you will face as a new startup is cash flow management. Finding net 30 vendors can help you save your capital for more pressing needs. But we are getting ahead of ourselves.
What is a net 30 vendor, you ask? Well, it refers to a type of payment agreement where vendors allow you to postpone payment by thirty days.
It might not seem like much, but having a month’s time to pay back can make a big difference. As a startup, every dollar is precious. With Net 30 vendors, you can invest your funds in areas that give you returns.
The benefits that come with this route are great. According to eCredable, in addition to providing you with cash flow, net 30 vendors also build up your business credit. Every successful entrepreneur understands just how important vendor relationships are.
Build a track record of reliability in paying back your debt as a young startup, and you won’t regret it. Potential investors will also trust you more when they see you have a track record of effective fund management.
3. Learn to Survive and Push Through With Bootstrapping and Crowdfunding
For whatever reason, if you aren’t able to find investors, your only options may be bootstrapping and crowdfunding. However, it’s not so bad. Bootstrapping allows you to maintain complete control over your business, as the funds come from your own pocket.
You don’t have to deal with the risk that comes with taking on debt. Similarly, you don’t have to risk diluting your equity by selling shares to investors. If your startup is precious to you, having complete ownership can be desirable.
Bootstrapping and crowdfunding are two ways you can ensure this. At the same time, you always have the option of finding investors in the future.
With crowdfunding, you are directly able to feel the pulse of the market in response to your product. Once again, there is no debt obligation here. You can reward your backers with benefits, but there is no real repayment obligation that binds you.
Successfully leading your startup without investors also sends a clear message. You are demonstrating that you have the ability and know-how to get things done regardless of access to resources. That’s a great quality that potential investors will notice.
Conclusion
Fear of failure is something that every entrepreneur has to go through. You are taking a big chance after all, and there are no guarantees handed to you. It’s just you and your wits against an extremely competitive market.
The adage of the lone wolf dying while the pack survives holds true. It can be tempting to want to be the sole owner of your startup. However, by partnering up, you effectively double the access to contacts, resources, and ideas. It’s something worth considering. Hopefully, this article has given you some context on how to approach fundraising as an early-stage startup.