Raising Funds for Startups
In an economy that can be volatile and unpredictable, it can be an arduous process raising funds for new businesses. Even the most prepared startup entrepreneurs face the frightening challenge gaining funds. It is imperative to refine your plans and adapt to new business strategies in order to finance your company.
Time is on Your Side
Raising funds all at once rarely happens. Investors will turn you down and raising adequate funds takes a lot of patience. Raising funds happens piecemeal and the key to getting investors is forgiving long-term relationships. Convincing potential investors your business is worth their money will take time.
Negotiate with Investors
In an uncertain economy, investors will be wary of where they put their money. They don’t want to lose their investment and walk away with nothing. When raising funds, negotiate with your investors. You should be prepared to offer more lucrative returns and even larger equity. How much money you should raise should be a combination of debt and equity. Rule of thumb, you should never give away more than 20% to 30% of your company at the inception of your startup. You should raise some money now and some money later in the form of both debt and equity.
Shell Out the Cash
Since you cannot raise all money at once and you will be required to spend a legitimate amount of money on equipment, materials, salaries, customers, etc you will surely be spending a lot of money at once. You will be burning cash and not pocketing profits. It is prudent to prepare yourself for a long road of shelling out cash. Startups require dedication and understanding that there are sacrifices.
Keep Investors Involved
The key to long-term business relationships is trust. Keeping investors in the know and abreast of any developments — pleasant or unpleasant. It is better for them to know about cash flow problems and negative projections than pretending everything is rosy. If they trust you, you can develop proper honest communication. In summary, be forthcoming and accountable to your investors.