The process of taking a startup from inception to success story is about timing. Raising funds as a startup sounds simple, but there is a lot in play. It is the perfect science of knowing when to allow investors to buy into a piece of the pie, at the most advantageous time for your company as a whole.
Technological advancements from Figure Equity Solutions (FES) simplify the path to raising capital, managing equity, and unlocking liquidity. Knowing when to flip the switch can help unlock these powers.
When to Raise Money?
Step one as you begin your journey as a startup is to understand when you want to raise money. It is easy to think that the sooner you can raise money as a startup, the better. When you build capital from investors, though, you are granting them partial ownership. As your personal equity goes down, so does the weight your message brings. Even minority stake investors will have some influence over the path you take your company. When you raise capital, you need to show the road ahead that speaks to your vision.
Do You Have a Product or Service That Solves a Problem?
When you decide to raise money for your startup, you need to answer this simple question. Do you have a problem that your product or service solves? What is it that your product or service does? Is there a market that it will serve? You may have a great product or service, but what is the reason a consumer will buy it?
Every consumer looks at a product or service and asks what is in it for them. For a startup, the path to getting buy-in from a consumer is more difficult due to a lack of brand awareness. You are introducing not only a product or service but your brand on top of it. You need to put out a product or service that will assist a consumer in some meaningful way.
Is There Adequate Demand for the Product or Service?
There are so many great ideas from individuals that never gain traction in the market. Many will blame poor marketing or advertising, but it may boil down to lacking demand. The best product or service in the world is no good if there is not adequate demand for it. You need to demonstrate demand for what you offer to determine it is time to raise money.
So how do you determine or demonstrate demand? You start by doing some pilot runs with your product or service. A pilot may mean sending out samples to consumers, getting feedback, doing trial runs with merchants. Once you prove out the demand exists, you can then bring in investors to help scale further. Plan, do check, and act are the cyclical steps. As you do market research, build prototypes, and experiment in different ways, you will evolve to a market entry with a high polish.
Reasons to Delay the Raising of Capital
Why is it you would ever wait to pursue raising capital for your startup? To be in a position to raise the capital you need to demonstrate demand. You want interest generation from your target market about the product or service you will offer. You may have difficulty getting investors to give you funds for a product with no proven marketability. If you bring in investors, the ownership interest you grant may be far higher than you want.
You also want to analyze the resources at your disposal. You may have adequate cash, talent, as well as product to keep going at your current state in the near term. When you have the proper talent pool and cash to continue to grow incrementally, you continue to generate more consumer interest. This way, by the time you move forward to raise capital, investors are chomping at the bit to get in on the action and you scale that much faster.
How to Decide How Much Money You’ll Need
The next big piece of the puzzle with a startup and raising funds is to determine how much money you need. You may think that you want to raise as much funding as possible, but that should not be the goal. You want to go into a fundraising cycle with your roadmap in mind. Where do you want your company to be in the next year, the next three years, and the next five years? Now when you look one year ahead, how much capital do you need to get to that next step? While there is no science to raising capital, you only want to raise as much funding as you need to get to that next incremental milestone.
Identifying the Goals of Your Startup
What are the next goals of your startup? Do you want to attract a certain number of customers to your product or service? Is there a sales milestone you are looking to at over the period? These are all goals you may want to consider. As you detail these goals, the question then becomes what is the funding that you need to get there. This can help you identify the funding targets you seek.
Plan for Setbacks
You also want to plan for failure when you raise capital. You may have a sales goal that is one year into the future, but what if it takes two years to reach? Do you have the capital to keep going as an operation over that two-year period? The concept here to bring up is regarding the runway. The runway is the length of time you can keep the business going before you run out of cash. Be sure you are planning for setbacks, temporary failure when raising capital.
Tips for Raising Capital
What are some of the common tips that you should keep in mind when raising capital for your startup?
Always gather as much data as possible before going into any fundraising initiative. You need data to show an investor your company’s true growth potential and profitability. Having data to back up what you claim is critical.
Consulting with your business attorney can also help you navigate logistics. They may recommend a product like Figure Equity Solutions to help get your capital raise going quickly and seamlessly. A software solution like this will also help you with your annual 409A valuation and other requirements.
Prepare the investor speech. You need to be able to wow investors with your pitch. How can you in a succinct and direct way get across your vision, your product, or service, and why you are the right investment opportunity?
Finally, just like you target customers, target investors as well. Investors all have different risk appetites and markets they are experts within. Target investors that can help you grow, share your mindset and goals.
Figure Equity Solutions can help with the management and maintenance of equity. Capital raises are an art form, difficult to master from one startup to the next. If this is your first go-round with a startup or you are a veteran, there is always the opportunity to learn something new. The technology powering Figure Equity Solutions allows you to take your capital raising, equity management, and liquidity to the next level.