- December 24 2021
- 3 mins
10 things every entrepreneur must know for getting funded
Startups require funding for working capital and growth. The nature of funding can be for equity, on debt or collateral-free grants. While Mirainxt is investing in new-age ventures, there are 10 things that every startup founder must know to raise funds
1. Knowledge about investing:
Every startup needs capital in the form of money. The most important and the most valuable way to fund the business is to sell the product or service to customers. There are different ways to raise funds, and each way usually comes into the picture at various stages of a company’s life cycle. The first one is to use your own money. Next, it’s usual to call on friends and family to invest, I.e. bootstrap. Then one looks for outside investors like venture capital firms or angel investors and, after that, private equity. And once the enterprise has taken off, it can sell shares through an IPO (initial public offering of shares).
2. Why do investors usually invest?
90% of the businesses are not fundable. One has to be privately limited to be eligible for startup funding. Investors don’t care how the entrepreneur & the business is doing. All they care about is the money they invested in the company gives returns or not.
3. The need for funding for the enterprise:
The need for investment is to be determined before everything. What does the enterprise need fundings for? The answers may include manufacturing products, hiring sales professionals, marketing professionals or critical managers, market expansion, etc. According to MSME, the investment made in plant & machinery or equipment in manufacturing enterprises is less than INR 25 Lakh for micro-business & less than INR 5 crore for small businesses. Regarding service enterprise, the investment provided is less than INR 10 Lakh for micro-business and less than INR 2 crore for small businesses.
4. Steps in investing process:
If the enterprise is in the initial stage of funding needs, it is suggested to go for seed funding first. Then the next step is Angel Investor, as the startup ends to grow towards development. Then comes Venture Capital Financing to scale business to new channels & customer segments. After this comes various types of A, B, C, D, E & F funding types. But once the business has released money through each of the preceding stages, going public is an option to expand further, i.e. raising an Initial Public Offering (IPO).
5. Understanding investors point of view:
Investors make their money by helping a young company grow and gain in value and then cashing in a few years later when it is sold or goes public. They expect a huge return on their investment i.e up to 2 to 10 times or more of what they have invested in. It’s also important to remember that investors don’t make their money as they go. They earn the returns in one lump sum, years after the initial investment. This thought affects how investors view their investments in an enterprise.
6. Is the investor the right fit and the other way around?
Not every investor is the golden ticket, and just because the business has been presented with a fair term sheet doesn’t automatically mean it should be signed. The funding amount and valuation are important. But equally as important is making sure the investors are the right fit.
7. Benefits of getting funded:
Some investors provide various resources and advice to the entrepreneurs, but it should be kept in mind when they have to take a backseat and let the entrepreneurs run the company. There is easy access to business capital & other networks and linkage with fundings.
8. Risks & disadvantages of being funded:
There are two sides to a coin: one doesn’t want a too controlling investor. The entrepreneur put in the work to get the startup to this point, so the entrepreneur should run the company. The entrepreneurs are the CEO, not the investors. There are a few
additional tasks of sharing ownership & critical decisions, but it all depends on the enterprise’s funding.
9. Expectations of investors from entrepreneurs:
There are all sorts of funding the entrepreneurs can seek out, and there are different kinds of investors. But they are generally looking for the same things. They look for the one who has
appropriate business knowledge knows the use of funds, explains the return timeline, has intangible qualities & passion.
10. Funding requires time:
The process could take up to 90 days from the initial pitch to the investors till the entrepreneurs get the money in the bank. Many entrepreneurs have mentioned that it can take six to nine months to complete the funding process.
Finding funding and the right investor can be a tricky part of getting your venture off the ground, but also the most rewarding when you begin by getting the first investment cheque. Getting funded is an important milestone for an entrepreneur’s long journey to success.