After generating a viable business idea, it’s time for you to make your plans into reality. However, several options are available if you don’t have the finances to do so. You can find funding through loans or debt, which could mean paying back hundreds or even thousands of dollars each month.
Fortunately, a cost-effective option for a new entrepreneur is fundraising. This alternative allows raising enough funds for your idea by showing your vision to the ones who want to invest in it. Aside from that, this strategy might help you promote your products and services through word-of-mouth marketing by your investors.
To ensure that you get the best results from your fundraising efforts, here are the basic principles you must consider as you look for contributors for your startup idea.
Top Fundraising Sources For Startups
The startup fundraising process is challenging but even more complex when you don’t know how to start. Thus, here’s a four-item list of the top fundraising sources for your startup company:
- Equity Crowdfunding Platforms: have made it easier for startups to raise money from the crowd. You can use them to raise funds for your startup, but they also have many other uses. You can use crowdfunding platforms to test new ideas, validate product concepts, and even raise money when you need it most, like in times of emergency or natural disaster.
- Angel Investors: These venture capitalists invest in startups in exchange for equity or a percentage of the company’s profits. The best way to find angel investors is through referrals from trusted sources such as family members or friends who have invested in startups. Alternatively, you may consider these school fundraising ideas to help you attract these types of investors.
- Investments: If you’ve been operating your business for a while and have proven yourself an entrepreneur, private investors may be willing to give you money in exchange for partial ownership of your company. This type of investment is known as equity financing and usually involves filing paperwork with the Securities Exchange Commission (SEC) before any money exchanges hands.
- Friends And Family: This alternative is arguably the most common type of funding. You can tell your friends and family about your idea and see if they want to invest in it or lend you money to get started. It’s a great way to get a slight boost if you don’t have much time or capital, but it’s also risky because there’s no guarantee that you’ll be able to pay them back.
Factors Potential Donors Look For In A Startup
The fact is, when it comes to fundraising, most people are not willing to give. The other point is that you need the money. That’s why it’s essential to understand what motivates people to offer capital and how to approach them with an effective fundraising strategy. Thus, you must read these four elements that potential contributors look for before giving money to your startup company:
- Traction: This element is the most vital. Potential donors want to see that you have a product and that customers are using it. They also want to see that customers love what you’re building and are willing to pay for it. A little bit of traction is better than none at all, but if you can show that demand for your product is already exceeding supply, that’s even better.
- Business Model: Potential donors want to know how you plan to make money with your product or service. If you’re building something free or open source, they want to see how those projects make money and whether you keep up with ethical practices. If you’re charging for access or licenses, potential donors want to know who will pay and why they’ll keep paying in the future.
- Founding Team: An essential element of any startup is its founding team—the people with the skills and experience necessary to execute its vision. Investors want to ensure that the startup has a strong leader who knows what they are doing and other key players with relevant skill sets. For example, if you’re building software for mobile devices, having an experienced developer on your team could be essential.
- Market Size: Investors want to know how big your market is and how much opportunity there is for making money from it. If there’s no market for your product or service, then you’ll have trouble attracting funding from anyone other than friends and family (and even they might hesitate).
Tips When Presenting An Idea To Contributors
You must make many great first impressions when fundraising for your startup. The best way to do so is by ensuring you have a great story. So, this section provides you with six tips as you create a pitch that will get donors and investors excited about your company.
- Tell A Story: Donors like to hear about real people who are making a difference in their communities and changing the world. If you can show how your organization is helping other people—whether through direct services or by providing resources—that will likely be an essential part of your pitch.
- Practice Transparency And Honesty: You want potential donors to trust you, so it’s essential to be transparent about everything from financials to goals and challenges. They’ll appreciate knowing what they’re getting into before they come on board.
- Show How Their Donation Will Make A Difference: in the lives of those they care about most. If someone cares about children, animals, seniors, or veterans, let them know how their donation will help those people.
- Clarify How Much Money You Need: Individuals unfamiliar with your project may be unable to provide the right amount of funding. So, ensure they know how much they can contribute to your startup idea.
- Prepare A Detailed Business Plan: This document allows your contributors to understand your business and its potential revenue and profit margins. If they find the plan interesting enough, they will be willing to invest their money into your startup.
- Know Your Target Customers: Your potential donors want to know who your target customers are and how much revenue you can generate from them. This strategy gives investors a good idea of what kind of return on investment they can expect. If you show considerable demand for your product or service, it will help convince investors to invest in your company.
Takeaway
Before you can actualize your startup company, you must prepare your founding team to present your idea. Therefore, you should consider these principles as you conduct fundraising activities for your business. In turn, you might be able to generate more than enough funds to push through with your plans while making a difference in your community.