Raising capital is a crucial, necessary and challenging part of starting a business.1 Solvency is critical for all burgeoning organizations. Before you set out to find the right investors who will undoubtedly be asking tough questions, make sure to take the proper steps to set yourself and your business up for long term success.
Why is raising capital important
There’s a common, and in this case pertinent, English phrase that applies to raising capital that says, “you must spend money to make money”. It's hard to get started and make money with a business without investing in the right assets. This applies to everything from staff to supplies, products, advertisements, and other business-related expenses.2
Many new organizations fail due to a lack of financial runway to get them through the early stages of their existence. Appropriate planning and budgeting will help to ensure that investment capital enables a business to turn its ideas into reality. Finding investors who believe in your vision and goals can keep you moving forward faster and longer.3
Investors who are willing to provide funding are essentially telling you that they see the potential success of your business venture. Each investment is a vote of confidence for your startup to deliver something novel or valuable to market. Once you begin to build credibility with reputable investors others will likely begin to take notice. This will not only get you the capital that you wanted but may also lead to new networking opportunities and potentially media coverage.1, 4
Start early to find capital resources
It’s important to start early when it comes to raising capital for your business. It’s also essential to check your level of preparedness for as many varied scenarios as you and your company may encounter in your beginning stages. Before you really need the money, you should already have the money — beginning to raise capital as soon as possible is vital. While bootstrapping is commendable, it’s not always the smartest move and could potentially leave you in a less than ideal condition. That being said, any investment is a risk, and leveraging some of your own assets can display a level of faith to other parties, but it’s not required.
Network and find investors
Do you know your industry inside and out? You need to. Before you start networking, making sure you know where you fit in to the market and where your opportunities lie will help you to find the right investors. Getting the ball rolling may seem like an arduous task if you don’t know where to start. Luckily, these days there are countless platforms for networking. Social media is a huge in-road for a lot of startups, but there are also professional platforms like LinkedIn, blogs, websites, and other local and national groups that may be willing to invest.
There is a great deal of options for funding in the market today. Be sure to research the different investment streams available to you and weigh the pros and cons of each. Capital investment as well as unforeseen networking opportunities can come from sources like family, friends, grants, loans, potential partners, corporate sponsorship, venture capitalists, crowd funding, angel investors, and the like.5 Just make sure to thoroughly analyze the risk and rewards of each option before asking for an investment.
Make sure to have a well-designed, and comprehensive pitch deck before getting the ball rolling on finding investors and asking for networking leads. The pitch deck is an important presentation tool used to stir up interest among potential investors. This deck should include your organization’s:
- Value proposition
- Target market
- Opportunity or problem you’re going to solve
- Business model
- Marketing and sales strategy
- Use of funds and everything related to the nature of the business6
As you pitch to investors they’ll likely provide constructive feedback. Be sure to listen and adjust as necessary to further strengthen your messaging.
Launch crowdfunding campaigns
Around $17.2 billion is generated yearly through crowdfunding in North America alone making it one of the fastest growing ways to raise capital for business.7 There are a few different types of crowdfunding methods available including equity and rewards based, but all of the options are fairly low risk and a great way to get a product into market as well as to gather helpful user feedback from early adopters. Find reputable crowdfunding companies that best align with your business and goals, charge reasonable fees, and offer a high rate of return.
Before you launch, make sure you have a clear expectation in mind about what you want to get out of the campaign. Next comes the storytelling — the best campaigns include a mixture of copy, video, images and/or illustrations. Things like understanding your target audience, adding videos, and frequently updating your campaign page all significantly increase the likelihood of funding. You may also want to start thinking about a tiered rewards system or enticing incentive for those who invest. A great way to get started with your own crowdsourcing campaign would be to study a few of the most successful launches over the last few years and see what you can learn from them.
Apply for a loan
Applying for a loan is a classic way to go about raising capital for a business. Luckily today there’s a myriad of loan options to get you started. One of the best ways to obtain a business loan is by asking the bank or credit union with whom you already conduct business. Another option is the Small Business Administration (SBA). Conditions for borrowing from the SBA have vastly improved over the years; with more than a few options for loans they could be a beneficial choice for your organization.8 In addition, there are plenty of banks and lenders that operate solely online, keeping overhead down and, at times, having more favorable rates than brick and mortar banks. But do your due diligence and check out all the rates online first. Then, simply apply for the loans with the lowest interest rates and repayment terms that will work within your timeline.
Think long term
It’s important to think long term when it comes to raising capital for this new venture. Making sure you’re setting your business up to run efficiently is critical for continued success and scalability. Raising capital for your business may be a long and difficult process at first but be patient and persistent. Make sure to keep an open mind, keep adjusting as necessary and moving forward toward your dream. For more information, speak to a business insurance agent or visit the Business Solutions Center for more resources.