Learn to get your startup funded

wwww.digitalerra.com
Learn To Get Your Startup Funded
You have an idea but how will you turn into a reality. The fuel
required to make your idea fly high is “Funding” and therefore
today, in our 2nd
part of the “Startup Week Series”, we discuss
the fundamentals of funding your business. The piece is of
great help for all fund seekers, entrepreneurs, startups and
related fields of interest. So, let us explore for what it takes to
get funds!
1. Start with a number
You have to start with knowing how much you need. It’s not a
random number, and it’s not how much you like. You look for the
startup sweet spot, as set by the business plan.
For instance, your total cost could be identified.

 Total cost= Total fixed cost + Total variable cost
 Total cost (TC) in the simplest terms is all the costs
incurred in producing something or engaging in an
activity. In economics, total cost is made up of variable
costs + fixed costs.
 Variable costs (VC) are costs that change based on how
many goods you buy or how much of a service you use.
 Fixed costs (FC) are costs that don’t change from month
to month and don’t vary based on activities or number of
goods produced. They stay exactly the same.
2. Main sources of funding
The main sources funding new businesses are personal savings,
personal debt, commercial debt, friends and family investment,
and outside investment. Debt means you pay it back or lose your
collateral, and investment means you don’t pay it back but
investors own a share of your business. This doesn’t include
alternative ways to get startup financing.
Some alternative ways of financing:
 Prepaid sales: Get a company that knows and trusts you
to prepay services, or product development. Give one or
more key customers an attractive discount for betting on
you early.
 Non-traditional borrowing: Angel investors can lend you
money if they want to take a risk on you that way. Usually
they’ll do it only for additional benefits to compensate for
additional risks. That could be a high interest rate, or
some portion of debt.

 Percent of revenue, or royalties: You might find a
company that would work for a small fixed fee per month
plus a small percentage of future revenue.
 Do-now pay later: Offer somebody a contract for services
paying a bare minimum now and then twice as much later
on, as a balloon payment or a series of payments.
3. SME loans
SME-guaranteed loan can lower the personal risk. You get these
loans through commercial as well as nationalize banks. Watch out
for different Government schemes and provisions.
4. Crowd funding on the rise
As of now, crowd funding has become an emerging way of raising
capital entailing the use of social media networks – Facebook,
Twitter, LinkedIn and some dedicated websites. There are ample
resources like Catapoolt, Kickstarter and Indiegogo available on
the ‘World Wide Web’, allowing entrepreneurs and startups to
initiate their crowd-funding ventures. Remember, using these
platforms is easy at the same time needs creativity. Build web
pages hosting information, promotional videos and images of the
products or services for which you need funding. Ensure that the
pages you create are catchy, explanatory and engaging for the
audience.
5. Convertible Debentures
 A convertible debenture is a non-valued investment. The
benefit for founders/management is that deferring the
value of the business may enable founders/management
to increase the valuation beyond the amount of debenture

financing. This can reduce the dilution to your startup
ownership.
 Convertible debentures differ from traditional debt. The
principal of the debt plus all accrued interest will be
converted into the class of shares offered to new investors
in the next round of financing at a price equal to (or at a
discount of typically 10-30%) to the price of and on the
same terms as the shares that are offered to the new
investors.
 This type of deal has become the frequent choice of angel
and other groups who are providing seed funding to start-
ups that expect to seek additional funding within a year of
the initial investment round.
6. Angel and Venture Capitalist (VC) Investment
Angel investment and VCs are for businesses that offer a
reasonable chance of future returns on a few hundred thousand
dollars. Real investors usually want scalable, defensible, high-
growth businesses that can be sold in 3-5 years, with experienced
management teams.

So what does a Venture Capitalist look for in a Startup?
Investors, in sharp contrast to friends and family, either believe
in your business prospects, your market, and your team, or they
don’t invest. They’re doing it to make themselves money. Startup
Plans that lay out its vision and mission in clear language and
then follow up with an actionable strategy and design to
implement it is what a VC looks upon.
Exit: Also, the investor looks for a deep understanding of your
financials. You need to have a believable revenue-to-expense
model, as well as initial thoughts on potential exits including

when you expect to exit. A presumably successful exit plan in
hand attracts the attention of Investor.
Of course, the fact of the matter is that the top VC firms, super
angels, and angel investors have unparalleled deal flow, they see
hundreds, sometimes thousands of pitches. Sure, there are
plenty of resources where entrepreneurs can go to learn more
about VCs and top entrepreneurs, where they share their inside
knowledge in order to enlighten and educate. And, as mentioned,
there are an increasing number of options for funding:
Incubators, company builders, accelerators, VCs, angels, crowd-
funding portals, and more.
You can imbibe this winning formula:
 Big and bold idea
 I.M (Authenticity, Integrity, Motivation)
 A+ winning team
 I.P (Rapid Iterations & Pivoting)
 Objectivity & Adaptability
Finally, here is a list of self-assessment questions an
entrepreneur need to ask for himself.
 Do you have a viable, rapid-growth, highly-scalable idea?
 Does your business suit the venture capital model?
 What is the size of the market that your startup is
targeting?
 What is your reason for starting up?
 Are you ready to share control of your startup?
 Which venture capital fund is right for you?
 Do you have the boldness and perseverance to sustain
tough patches?

 And finally, can you get a VC excited about your startup?
Conclusion
Having said all, money is not a sufficient motivator to overcome
the ups-and-downs of the startup journey; instead entrepreneurs
have to search for their true motivation and pursue problems that
they feel genuinely passionate about.

Learn to get your startup funded

Related slideshows

More Related Content

Learn to get your startup funded