There comes a moment in every entrepreneur’s life when they have to decide if they need to start raising funds to grow the company. Some believe bootstrap is the way while others jump on the seed fund wagon. If you aren’t sure of which route to take, this one’s for you.
Securing the necessary seed funding can be one of the biggest hurdles a startup owner can face. But, there’s absolutely no need to rush to get the precious monies. In fact, it’s one of the fatal mistakes a lot of founders make; they don’t stop and consider whether getting a seed fund (at this point in time) is right for them, how valuable their business is, and if they actually understand the process and implications of getting a seed fund.
No matter which school of thought you belong to, you need to objectively look at funding to see if it’s the right course of action.Seed funding can be a growling process. Being prepared will give you the best chance of making a decision that’s the right fit for you and your business. Here are 7 questions you need to consider before you step into that meeting with an Angel:
1) Am I solving the right problem?
Early stage companies often get pulled in the wrong direction because of the myriad opportunities that present themselves; while, in reality, they are nothing more than mere temptations. Focus on one real-world problem and solve it.
The product needs to satisfy a strong market demand. There are several products which create new problems that their product solves. Make sure it’s the other way around. Investors are going to be concerned about this. So get your answers in order before you think about getting outside funds.
2) Do I have the right product market fit?
Having a fundamentally solid product is the cornerstone of any business. It’s absolutely crucial for your product to be working, solves a real-world problem, and has a unique selling point. Only when it meets these criteria, it’s going to succeed.
If a proof of concept goes a long way, a working product goes longer. You’ll also need a structured demo and a roadmap for your product.
3) What’s my business worth?
Financial analysts use a multitude of techniques to find the monetary worth of a business. The Berkus method, cost-to-duplicate approach, and the market multiple approach are some of the commonly used techniques to understand a startup’s value. We’ll go over each of these extensively in a future blog but the point is no matter what method you use, arrive at a number and stick to it. That’s how much your business is worth. That determines how much money will be invested. And that determines what percentage of the stake you give up.
4) What will I do with the money?
This is one of the critical questions you need to answer. But, the answer to this isn’t as simple and straightforward. You need to have the big picture and anticipate the expenses you might incur in the next 16-24 months.
- Are you going to spend the money to bring in talents and C-level executives?
- Are you going to move to the swanky office?
- Are you going to pour that money into marketing and research?
Think about how you are going to put the investment to good use. Because the investors sure are going to ask you!
5) Do I have the minimum viable team?
As much as the investors are going to consider your idea before they cut that check, they will also be banking on you and your team. They want to back the team with the right attitude and longer horizon of growth. According to a study by Stanford Business, the skills and abilities of the founding team is one of the most important deciding factors when VCs make decisions.
6) How much control am I willing to give up?
Accepting angel or VC funding means you’re willing to split a stake in the company; a share of the profits; and a part of your ownership. You must also be fine with bringing new board members who will have a say in how the company is being run. Make sure you place emphasis on this question before you make a decision.
7) Are you ready to answer investors’ questions?
Being aware of all the questions a potential investor might throw at you is a completely different ball game. If you’re new to this whole funding scene, you must be aware that you can not just skate through the slides. Investors won’t be wowed by your well-practiced pitch; they will be when they know the things you left out, the assumptions you made, and your thought process. There will be several questions regarding the market, the opprtunity, the team, competition, the financials, and how you’ll use the funds.
Looking for a startup grant?
TANSEED 2.0 is here for you. StartupTN will grant you the funds you need to scale without the pressure or the loss of control that comes with angels and VCs. Earlier this year we launched the first edition of TANSEED where we supported 10 startups with a seed grant of INR 10 lakh each. Following its success, we’re planning to launch TANSEED 2.0 in July to September where we’ll support up to 20 startups with INR 10 lakh each.
Zappos’ CEO and founder Tony Hsied says, “chase the vision and not the money; the money will end up following you”. The right vision is what attracts the investors. So understand your motivations before you take the first step to raising capital.