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A recent study found that nearly 9 out of 10 business startups fail in the first year, and one of the most common reasons for this is lack of funding. So are you wondering if it’s the right time to raise money for your startup? The answer will vary from company to company. First, ask yourself why you need funding, then decide which financing option is best for your business. If you decide it’s time to raise money, here’s a guide for tackling the funding issue.
timing is everything
Timing is everything in business. Many people think that timing is all about luck, but there is nothing farther from the truth. It becomes a success factor. If you’re wondering if it’s the perfect time to start fundraising, it’s time to ask some direct questions.
• Are you short on cash to keep your startup self-funded?
• Are you reluctant to put your personal assets at risk, such as taking out a mortgage?
• Are you looking to avoid additional risk with new lines of credit?
Don’t raise capital just because you’re a startup. You want to add value to your business and drive growth. If you have already grown enough from your existing and projected revenue from customers or clients, Bootstrap may be a better option. Cash from outside investors may not be the best plan in this scenario. Bootstrap also gives you time to build traction, earn higher ratings, and show growth.
However, if bootstrapping isn’t an option and it’s time to raise money, it’s important to make sure you’re in a strong position to attract investors. Make them feel like they’re going to lose out if they don’t invest in your startup. Consider raising money when you’re celebrating a business win or milestone that you can brag about to potential investors.
RELATED: Capital Gains: How Digital Entrepreneurs Master the Essential Art of Fundraising
What do investors want to see?
Ready to start pitching to investors? Building a basic financial model for your startup is very important. This model provides a roadmap for the cash needed for the next business milestones and future business targets. It can also identify short-term and long-term capital needs.
Startup Growth, Forecasts, and legal structure, is also important to be delivered with a punchy pitch. Investors need to understand your vision, projected growth and opportunities, the legal structure of your investment, and make an unforgettable, concise and compelling pitch.
Choose the Right Investor
Investors not only provide significant funding, but they can also bring fresh ideas, concepts, and unique life experiences to the table. Key questions to consider when choosing an investor include:
• Can friends and family meet your financial requirements?
• Do you want a more significant investment through a formal series round?
• Will your business benefit from a professional network of legal and financial experts, inspirational leaders, and more?
• Do your investors offer opportunities for growth and expansion?
Successful startups usually have a network of industry experts who can reach out to support them throughout the development period. In the UAE, this includes investor communities, startup hubs and angel investors. Utilizing these resources will help answer these questions and help you choose the right funding option for your startup.
So how can startups structure salary increases? Here are some options.
family and friends Many startups are getting closer to home by raising money from family and friends. This funding route is fairly common in the early stages of a business startup, but it can also be an option in the later stages. They will appreciate your success.
angel investor Networking can help you meet angel investors. Angel investors typically invest small amounts of money in various startups. Angels have different goals, perhaps rapid growth or cutting-edge projects, risk-adjusted returns, especially in the current economic climate. Focus on developing a demonstrable product or service, a strong support team, and a thoughtful financial plan.
Institutional Venture Capitalist (VC) If you have just completed a seed round and your business is still growing, approaching venture capital funds may be your best option. VCs can offer large investments in exchange for a comparable level of control over the business. Attracting experienced and forward-thinking VCs requires the ability to demonstrate rapid growth, traction, and scalability potential.
Corporate venture capitalist/investor Many large companies invest their corporate funds directly in outside startups. They operate much like institutional VCs, but often tend to invest in companies they want to acquire in the future.
Overseas venture capitalist Seeking international investment from the US, UK and Europe can offer endless possibilities in terms of market size and capacity. This usually happens when you move past the development phase and into the later stages of fundraising. A good approach here is to look at your future target market and network with international investors in this industry. Consideration should also be given to the costs and tax implications associated with possible relocation to the country of origin.
The last word
Fundraising is an exciting time for a business. Accept this challenge as you take your business to the next stage of growth and development. When raising capital, you need to decide:
• Current risk level
• Growth projections • Salary structure
• Investment conditions and investor management level
Critical to your success is your ability to connect with the right professionals who share your vision and can provide the right expertise.
RELATED: Go big or go home: Breaking the ‘scale-up ceiling’ requires Middle Eastern audacity