funding for startup

4 Ways to gain attention from VCs

An entrepreneur should build a strong case first by getting to know someone from the company and then approaching the VC in their area of interest.

Each day venture capitalists and investors receive over hundreds of cold emails and meeting requests from start-up founders and small time entrepreneurs. It is difficult for VCs to process and select the start-up they want to fund that way. Instead, an entrepreneur should build a strong case first by getting to know someone from the company and then approaching the VC in their area of interest.

In the following ways, you can look out to attract more VCs for funding:

1. Innovative solution to a problem

Focusing on the problem and devising a solution is the key to getting more investors for your venture. In this era of cut-throat competition, simply coming up with a new idea isn’t sufficient. The idea needs to be worked on and presented in a complete manner with business suggestions, marketing tactics and target group mentioned in a well-compiled presentation. VCs will choose the most differentiated and rounded appeal which they find will enhance their chances of making profits as well. A revamped version of a done and dusted idea will instantly be rejected by the VC.

For instance, OYO rooms was a completely different and innovative idea which is why they have huge investors like GreenOaks, Sequoia Capital etc.

2. Assumptions must be challenged on a continuous basis

Start-ups often stick to the original plan they have devised which is why they don’t grow with time. However, the basic thesis must be challenged from time to time as the markets are dynamic and constantly evolving. Assumptions must be proven or eliminated through basic research methods for a more rounded understanding of the business.
Once you are clear with all the factors related to your business, pitching to a VC becomes easier for you and the VC is also clear about what he investing in.

3. Think beyond the horizon and act

If you have a unique insight and are able to present it well in front of the VC, chances are that he will invest in your business. VCs don’t want to invest in an area beyond their zone or one that they think is not feasible. A VC doesn’t want to invest in an idea which is not innovative either. Hence, one needs to have a clear vision and come up with unconventional methods of making it work in the future. Strategic investors are more likely to invest in ventures that have an articulated vision of what they want to become in the future.

Related Post: How to raise money for your startup?

4. Build a strong team of dedicated individuals

Founders need to encourage significant contributions to the start-up from people from different backgrounds. You must have a mission that is big enough to source human resource for different fields. Finding an entrepreneurial crew that wishes to guide their wider team as well as customers, markets and investors to a better future with conviction and humility is a time-taking but rewarding process.

A VC’s research will tell him about your dedicated team and your strong leadership which will definitely be a huge contributory factor for him to invest because strong leadership skills and a set vision are the keys to a success.

If you follow these rules, you will definitely find a great VC to invest in your company. We wish you all the best on finding a VC and on your start-up.

Image Credit: americaschoicecredit.com

Four important facts while evaluating an offer for funding

If you build something that’s promising, you’ll find lots of potential investors and many doors will be open for you. But before taking big actions, it’s best to keep the following considerations in mind.

Valuation of the Advices You Get is Key

It is really critical to work with experts in your specific industry. You have to be picky when it comes to taking advices. Knowing the right people has been invaluable every step of the way.

Your Story Is Important

Accepting an investment is a landmark event in the history of your organization. Your selections will show the world what kind of company you aspire to be. This selections are being watched and by, customers, competitors and even inside your organization. Stay aware of your own story and let it become your great strength.

You Must Know Your Partners

Consider each investor opportunity carefully. You must know what is important for you, what the key factors are for your company. Do you need a brand name, do you need control or do you need more cash reserves for example… Ask questions to your potential investor. Your relationship will need trust, so the questions and answers are important.

You Can Be Successful At Any Size

The goal of every company doesn’t have to be bigger and better. A spark can become an out-of-control wildfire without the right supervision. Commitment to responsibility and knowing the capabilities of your organization is maybe the most important, and frequently overlooked aspect of accepting investment. So be careful and don’t get ahead of yourself.

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4 Qualities angel investors want to see in startups

In order to make the going a little easier for all those entrepreneurs seeking Angel investment, we have a few tips up our sleeve which we would like to share.

The Startup industry is blooming like never before. This bloom in the industry means both good and bad things for the early starters. While the good thing is, there’s enough acceptance and space in the industry, It also means that these new comers have to face a hard time distinguishing themselves from others and establishing a unique identity of their own.

One of the hiccups that these first time entrepreneurs have to face is getting funding for their young ventures. Angel Investment is one of the most famous form of funding in startups all over the world. So, in order to make the going a little easier for all those entrepreneurs seeking Angel investment, we have a few tips up our sleeve which we would like to share.

Here we go!

1) Angel Investors seek to know the real you –

Having invested in a lot of startups and met a lot of entrepreneurs, they’re well aware of the kind of people and ideas they’re looking to invest into. Hence, the one thing that they’re actually looking forward to when meeting probable entrepreneurs for investment, is to connect with them personally. So, the next time you go to meet a probable investor make sure that they get to know and connect with the real product that you’re selling i.e. ‘you’.

2) They want to see a strong foundation –

While most Angel investors might be perceived as big time risk takers who have landed the role through solid personal net worth and annual income. But most angel investors aren’t the wild risk takers, ready to invest truckloads of money at an out-of-the-box idea kind of people. All they want to see is real money — a legitimate and strong valuation of the startup that isn’t skewed by flimsy funding managed from friends and family.

You’re most likely to land the investment if in some way or the other, your startup has already proved or manages to prove that it is on a path to success in the future.

3) Angel Investors want to taste the action –

While this might not be the case with all of them, but many of the angel investors don’t just want to invest in your startup and then sit back and enjoy. Many of them want to taste the ground excitement and get involved in the day to day working of the startup and use their experience in smoothing the daily working of the startup. They just don’t want to remain an outsider, they aspire to become an integral part of the startup and its working. After-all, they want to see good returns on their investment.

4) Angel Investors want to know about the startup’s exit strategy in place –

While investing, the investors are predominantly looking to see something in the business’s future that makes it a fruitful investment. Most of the times, all they’re looking for is a good carved out solid strategy, that ultimately converts into big money.
However, a solid plan doesn’t always guarantee huge success. Hence, according to the Wall Street Journal, “In general, the only way one can make a profit on an angel investment–or get at least some of your money back–is if the company you’ve funded has an exit event, such as an initial public offering or acquisition. And that can take years to happen, if ever.”

Hence, if you’re an entrepreneur or a startup seeking the attention of an Angel investor, make sure that you have a futuristic exit plan in place so that the investor exactly knows what is he getting into.
With these 4 things in place, you’re surely going to win over your Angel investor. All the very best!

This article was originally published in www.indianweb2.com

Image Credit: Entrepreneur.com

Smarter funding: How to get the backing that best fits your startup

Here are some of the trends in the tech world that have impacted how startups raise money.

When going from $0-10 million in sales, most tech entrepreneurs think there’s only one path to raise growth capital for their startups: selling equity in their business. It’s a model that has been reinforced by several decades of tech companies feeding on a steady diet of equity money. This equity model creates a cycle for entrepreneurs: found, build, raise, grow, raise, grow, and then exit, hopefully at a top valuation (and without too much dilution or a down round, since that would wipe out your founder holdings).

Then after you exit, if you’re really successful, you either spend lots of time on your sailboat, dabble as an angel investor and startup guru, or you repeat the process by starting another company and going at it all over again.

But things have changed over the past decade, and entrepreneurs should adjust their mental framework about startup financing accordingly. Here are some of the trends in the tech world that have impacted how startups raise money:

Launching a product takes less capital than it used to. Especially if you have a SaaS offering, your cost of development, delivery, support, and updates cost so much less than the days of packaged software. Development is faster, and platforms like Salesforce and AWS don’t require on premises severs and tons of tools, etc.
Recurring revenue models take time to build, but over time the power of compounding is intense.
Niche markets are easily served, meaning you can build great businesses and dominate a niche market without much competition.
More financing options are available for tech companies than ever before – if you’re creative.

If you’re trying to raise money for your business, there are now many alternatives to VC funding, particularly for smaller tech companies. Let’s look at some of the options:

Revenue or royalty-based financing

RBF is something of a blend between bank debt and venture capital. A relatively new type of financing structure, with RBF the company “sells” a set percent of its future revenues to the investor in exchange for a capital investment. The simplest way to think about it is as a revenue share between the company and the investor.

Pros: This method of financing is more accessible than bank loans or venture capital, and the loan payments align with the success of the business as they are based on company revenue. Additionally, the company retains full ownership and control, and there are no personal guarantees or covenants required.
Cons: RBF can cost more than other types of financing such as bank loans, SBA loans, or crowdfunding.
Good for: Companies that have been in business for at least 6-12 months and have a recurring revenue stream and steady growth. Also good for companies looking for growth funding to scale sales, marketing or development efforts.

Customer pre-pays for long periods

There are many pros and cons to this approach, but overall it’s cheaper than equity and it means your customers are committed to you.

Pros: In addition to providing cash flow and working capital to cover operating expenses, pre-payments may drive higher customer retention rates.
Cons: It can be hard to convince customers to prepay. This method also requires discipline to correctly manage cash flow. If you offer both monthly and annual payment options, you need to make sure pricing is appropriately discounted. Keep in mind that a prepayment discount is usually implied, i.e. 20% off if you pay for our tool/service annually vs. monthly.
Good for: Companies with large customer bases and businesses with seasonality (think landscaping in seasonal climates).

Charge customers for non-recurring engineering (NRE) expenses

Charging customers for non-recurring engineering costs will pay for your dev team! But before you go that route, you need to make sure whatever you plan to develop is something many of your customers want. You don’t want to allow one big customer’s requirements to derail your value proposition and focus. And you need to make sure you get the customer and don’t turn them off – you’ll do this by being the best overall solution for them, addressing their needs best and forming strong relationships with them.

Pros: Since you have to pay for development costs anyway, this route helps cover some of that cost. This capital boost allows you to build the features customers are requesting into your product.
Cons: You have to make sure these requested features are functional and map to customer requests/expectations. Furthermore, if you don’t estimate the project timeline correctly, it can end up costing you more time and money. Sometimes big customers can derail your product roadmap/vision.
Good for: Companies with large, complex enterprise offerings and integrations, and highly integrated tech startups that need to build products connected to other platforms (AWS, Salesforce, Marketo, etc.).

Donation-based crowdfunding

No equity is involved here, so we’re talking donation-based platforms like Kickstarter and Indiegogo. Crowdfunding only works for certain products, but some businesses have raised tons of money doing this. This financing method is simply booking customer sales in advance of having a product. It’s the best type of capital you can receive from your customers and the best thing for your cap table, since there’s zero dilution.

Pros: Crowdfunding allows you to have customer sales locked in and front-loaded before you start production. It can also serve as a good way to test demand and provide good intel on target customers and market.
Cons: You’ll have the added pressure of a large number of pre-paid customers anxiously expecting their reward or product. Plus, your offering may be perceived as a beta product and signal you’re not ready for prime time or in it for the long haul.
Good for: Companies producing material goods or who are in early stages of testing their product and market.

Equity crowdfunding

To gain financing through equity crowdfunding, a large group of investors (aka the “crowd”) gives you money in exchange for shares. If you go down this path, you may end up with dozens or even hundreds of investors, and there are more reporting requirements for investor protection, so it’s important to know how it all works. Here’s a good Equity Crowdfunding 101 article for reference.

Pros: With an online offering page, you are able to quickly share the details of your deal. This method also gives you easy access to investors and their capital.
Cons: There are many new and changing regulations around this model. While the JOBS Act is designed to open this type of investing to everyone, it has set limits. For example, if you raise more than $500K you’ll be audited, and you can only raise $1M in any 12-month period (via non-accredited investors). There will also be cap table issues and concerns about what type of investors you are bringing on. Choosing to pursue this source of capital might mean losing the ability for your investors to also be advisors. Venture investors sometimes view crowdfunding negatively — they don’t want to be one of dozens or hundreds.
Good for: B2C and early stage startups with a Minimum Viable Product showing traction (# of customers/users, MAU, DAU). Companies that have real numbers and metrics that demonstrate growth.

Line of credit

Once your company has over ~$5M in sales, technology-focused banks such as Square 1 or Silicon Valley Bank can provide Accounts Receivable (AR) and Monthly Recurring Revenue (MRR) lines of credit. Types of covenants you may see for lines of credit are minimum net income thresholds, restrictions on additional debt, and minimal revenue growth. Then there are liquidity ratios, which mean you must have a certain amount of cash in the bank vs. how much is pulled on the line.

Pros: In addition to low interest rates of 6-8 percent, you’ll also have access to the capital even if you don’t use it right away.
Cons: You must give a personal guarantee. Banks will usually require a financial covenant to secure the loan, so that means your house, or other equitable property, etc.
Good For: Companies with lots of accounts receivables and cyclical payment cycles, and companies with tangible assets.

As you review different financing options, it’s important to make sure that the options you consider map to your business goals. Here are three key questions to think through:

1. Are you sure you want to sell your company in next ~5 years? What if you really love what you’re doing and want to run the business for a long time? If that’s the case, equity probably isn’t the best funding option, since the first letter in “ROI” is “R”, and equity investors expect big returns – usually 10x or more. Successful businesses that never give a return to investors are a bad investment. It’s not fair to equity investors and can create a lot of tension. It’s hard to buy people out later, especially if you’re successful, and it means you’ll almost certainly be trading one equity investor for another equity investor.

2. Do you want to give up control? Once you take on equity investors, it’s no longer just you and your cofounder making decisions. You’ll have a whole new audience you need to please all the time, in addition to communicating with your employees and customers. Some investors will want to provide input on strategic direction and decisions. And you’ll likely get a new boss – a board of directors.

3. Are you really sure you want to “go big or go home”? What if you just want to build and run a great business? Receiving VC money is like having a rocket strapped on your back – either you’ll make it to the moon or you’ll blow up trying. While your chance of making $100M goes up when you receive VC money, so does your chance of making little to no money.

Just to be clear: I’m not against VCs or taking VC money. In fact, I’ve been a VC myself. There are many amazing companies that use VC money to grow and succeed. However, I do think if you’re looking at funding choices for your startup, you should go in armed with as much information as possible, because many times there may be a better option out there for your business.

This article was originally published in venturebeat.com