ReportWire

Tag: startup funding

  • My Startup Couldn’t Raise VC Funding, So We Became Profitable. Here’s How We Did It — And How You Can Too. | Entrepreneur

    My Startup Couldn’t Raise VC Funding, So We Became Profitable. Here’s How We Did It — And How You Can Too. | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    It’s no secret that the startup world is hardcore. Half of startups fail before year five, and only one in ten survive in the long run. Recent economic trends aren’t too encouraging either. Last year saw a 38% drop in global startup investment and a 30% decrease in the U.S., specifically. Moreover, of the available funds, a significant amount was gobbled up by trendy artificial intelligence startups. So, if you’re not in AI, the picture may appear even more grim.

    Today’s founders have to come to terms with the fact that the VC funding round they’ve been working toward might not materialize. Though this has always been the case, the bar is now so high that a plan B is essential — how will your business survive if it doesn’t receive funding?

    Alternative startup funding is one increasingly popular option, e.g., taking out a loan with a traditional credit institution. But this isn’t for everyone and definitely not for pre-revenue startups because the bank needs to see how you will repay the loan. Plus, collateral — or the lack thereof — may disqualify any software or other startups up front, as, unlike VCs, banks don’t operate on faith.

    So, if nobody’s giving you funds and you don’t have the runway to hold out until the ecosystem picks up again, there’s only one way your startup can grow — become profitable.

    Related: The Entrepreneur’s Guide to Building a Successful Business

    Why profitability needs to be top-of-mind even if you’re doing well

    I have been actively fundraising for my on-demand Consumer Packaged Goods (CPG) startup since its inception three years ago. First, we raised $1.9 million in pre-seed capital for building out our business core, which we did — securing the necessary partnerships, putting together a base of operations, developing our software and growing the team.

    With a solid foundation and proven business model, it was time to scale, and we sought VC partners to help us ramp up our operations. What I expected to be three to six months of active fundraising turned into a year that bled into the next and, to this day, is ongoing.

    Despite demonstrably positive business results and a slew of warm contacts and cold pitches, investor response was tepid. Interest came with conditions and homework — “Let’s reconnect when you achieve these figures.” But when we did, the goalposts shifted. Fundraising started to feel like a goose chase, and the increasingly turbulent economic environment didn’t do us any favors either.

    Right now, competition is intense and startups that investors would swarm just a few years ago might not get a second look today. With that in mind, founders should avoid placing all their eggs in one basket and hedge their bets by approaching growth in a profit-oriented direction.

    Because if you don’t, you have two equally unappealing options: going bust or getting chained to an opportunist investor who will pay pennies on the dollar.

    Three things a founder must do to be profitable

    Four months ago, my startup reached profitability for the first time. It came after more than a year of active work and planning, and here’s what it took.

    1. Change your mindset

    The main job of a startup founder is to raise funds — this is something that gets drilled in at incubators, accelerators and other mentorship programs. Accordingly, a founder’s focus often lies in beautifying their startup for investors, i.e. finding ways to boost KPIs even if it’s unsustainable, focusing on design over functionality, and spending big in marketing to demonstrate growth.

    When pursuing profitability, this must be unlearned. Growth cannot be cosmetic, and for many, that demands a change in mindset. Goals and priorities must be redefined. Forget maximizing sign-ups; focus on paying customers; forget vanity metrics; focus on conversions; forget your personal wants; focus on business needs.

    Note that this doesn’t mean you should stop fundraising, but you probably will have to revise your pitch deck.

    Related: How to Fund Your Business With Venture Capital

    2. Optimize your business

    A changed mindset is not enough—you need to get in the trenches and optimize, optimize, optimize. For a regular business, your runway is limited, and if you don’t bring your balance sheet into the green, then it’s game over.

    Here’s one specific area to pay attention to: startups often hyperfocus on client acquisition and neglect user retention. They’ll pay through their nose to get a signup but invest little in ensuring clients stick around, leading to a profitability-killer combo of high CPA (cost per acquisition) and a high churn rate.

    As my co-founder always tells our clients: “All you need is 100 loyal customers for a successful full-time business.” We adopted the same mentality, going for quality over quantity.

    Tackling this was a cornerstone of our journey to profitability. We went to great lengths to understand specifically when and where our clients churn and put all our effort into answering their pain points to ensure people keep using our services. This way, you’ll get more bang for every buck you’ve invested in acquisition.

    3. Expand your offering

    Unless you’ve been striving for profitability since day one, chances are it’s going to take you a very long time to reach it. In fact, it may be impossible to reorient your business quickly enough. For this reason, it’s wise to look into additional revenue streams that can support your business while it turns over a new leaf. This can be anything from additional services to new products. For example, my CPG startup allows anyone to start a side hustle or full-blown business selling on-demand supplements, cosmetics, and packaged foods. However, to start selling, our customers need to set up an online store where they can direct their customers.

    While our customers found our platform easy to use, they struggled to set up a store – so we began offering assistance with this as a separate service. Essentially, we leveraged our existing expertise to offer ecommerce development services, which was critical in extending our runway.

    Martins Lasmanis

    Source link

  • How to Navigate the Choppy Waters of Startup Valuation | Entrepreneur

    How to Navigate the Choppy Waters of Startup Valuation | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Entrepreneurs often have a deep, personal investment in their businesses, having dedicated years of hard work to bring their ideas to life. However, this emotional attachment can cloud their judgment and make it difficult to objectively assess their venture’s worth. They might find themselves attempting to translate personal effort, time and sacrifice into financial value, which can be problematic in the current environment.

    Though Series A investment activities have been stable as of late, there’s been an uptick in down rounds. According to PitchBook and J.P. Morgan, down rounds grew from 8% in 2022 to 20% in 2023. That means less money is coming in than normal, which means more venture-backed startups are on the hunt for capital.

    Complicating matters further is the valuation process itself. Many new businesses mistakenly set their value based on competitors, using similarity of goods or services to estimate worth. This type of comparison overlooks differentiators, such as operational, financial or execution risks. Failing to consider milestones that you’ve yet to achieve can lead to the misconception that all is equal.

    It’s important to remember that a competitor’s current valuation is the result of their unique journey, and yours will be something entirely different. The challenge is separating personal bias from objective assessment, as you’ll need a clear-eyed view of what your business offers to arrive at an accurate and realistic valuation.

    Related: What Every Founder Needs to Know About the Valuation Gap Between Entrepreneurs and Investors

    Preparing for a funding round

    Merely launching a great business doesn’t automatically mean it’s ripe for investment. The fundamental economic principle behind raising capital is that the injection of outside funds should fuel growth and increase the value of the business, creating the potential for investors to see a return on investment. It’s not like investors invest out of the kindness of their hearts (at least, most don’t). They want to see a clear pathway to profitability. The question then remains: How exactly do you prepare for those inevitable funding rounds? Here are some suggestions to get you started:

    1. Demonstrate the “why”

    Rarely, if ever, will it be enough to simply offer a piece of the business to potential investors. When angling for funding, it’s important to articulate the precise benefits of backing your venture. This is especially important in light of the 30% drop in startup funding in 2023, according to Reuters. You should be able to answer at least these questions: Why should anyone invest in your business? What’s the economic rationale for the investment? How will an investor make money?

    Whether it’s an ambitious tech innovation or a noble cause, go beyond the vision or mission of your company and present a plan that clearly shows how you intend to use the capital to achieve specific milestones. That means focusing on practical financial outcomes, which increases the chances that potential investors see a pathway to profitability. They also get a better understanding of the mechanisms in place for monitoring progress and achieving an exit. This clarity in the potential for financial return is what can make the difference in securing much-needed funding versus never getting a meeting.

    2. Understand the story behind the numbers

    In the context of venture capital and private equity, a compelling pitch will only get you so far. Rather, securing funding is more about what the concrete numbers reveal about the profitability of your venture. Profit margin, for one, offers insights into your company’s financial health and potential for growth. The same can be said for customer lifetime value, cost structure and revenue.

    For example, when my firm evaluates a business, understanding the cost of capital in the current market is crucial — even more so if we encounter a startup with an unclear equity distribution or no significant personal financial contribution. The issue arises when such a company claims that it’s worth a substantial amount, say $1 billion, without a defensible rationale. In other words, always provide tangible evidence that the hard work put into building the business translates into something of real value.

    Related: How to Get Funding: The Dos and Don’ts of Raising Capital From Investors

    3. Be mindful of investment terms

    One aspect that entrepreneurs often overlook is the concept of “toxic minority control,” which refers to the disproportionate influence or power held by minority shareholders. Should some disruptive investor buy up enough shares to secure a place on the board, it could potentially lead to adverse outcomes for the venture and other investors. You need to be mindful of this when raising capital, as the terms of investment can have far-reaching implications beyond the immediate influx of funds.

    Take Alphabet Inc., for example. Even though Larry Page and Sergey Brin own just 5.7% and 5.5% of the company, respectively, the two Google co-founders each own Class B shares, or “super-voting” shares, providing them with 10 times the control — or 51% of the votes, collectively. Meta and Walmart are other examples of companies with founders (or the heirs of founders) who still control the business even after the initial public offering.

    4. Never underestimate (or overestimate) market trends

    Though this should go without saying, where the market is headed can significantly influence your startup’s valuation. You need only look to last year for an example of that, with generative AI and AI-related startups raising nearly $50 billion in venture capital, per reporting from Crunchbase. However, don’t make the mistake of benchmarking yourself against corporations listed on the stock exchange.

    While market trends certainly make one startup more attractive than another, being in the same industry doesn’t equate to having the same value. Consider the nuances of your company’s stage, market position and operational history in relation to those operating in the same space. PitchBook and Y Combinator are both great resources, as they regularly publish statistics on the average valuations of amounts raised for different funding rounds. Understand where your company truly stands in terms of where the market is headed, as well as your market reach and status, to arrive at a realistic valuation of your venture.

    Related: 6 Parameters That Determine Company Valuation

    Entrepreneurs often begin with an idea and believe that its mere conception is equivalent to its potential realized. They look at the end goal, which can lead to unrealistic valuations. What truly matters, at least in the eyes of investors, is the ability to execute on that idea, which comes down to the numbers. Get clear on your standing, and then let that guide your discussions with potential investors.

    Jordan Gillissie

    Source link

  • Venture Capital 101: A Comprehensive Guide for Startups Seeking Investment | Entrepreneur

    Venture Capital 101: A Comprehensive Guide for Startups Seeking Investment | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Every day, dozens of startups go through the Vibranium.VC funnel; some don’t pass the first scoring, while others move to the next stage towards potential investment. Drawing from my entrepreneurial background, I can confidently say that advice I received in the past from professionals in specific fields helped me be well-prepared and aware of the nuances that come along with the entrepreneurial journey.

    Advice for startup founders is crucial at the beginning of their journey as it provides invaluable insights and guidance from experienced individuals who have navigated similar paths. This advice can help founders avoid common pitfalls, refine their strategies, and make informed decisions, ultimately increasing their chances of success. The early-stage startup founders are often filled with uncertainties, and seeking advice from business role models can offer clarity and direction to set a solid foundation for the entrepreneurial journey.

    Related: Why Investors With an Entrepreneurial Past Are Crucial to Startup Success

    Secure your runway

    Begin your search for investments at least six months before your funds run out, ensuring your runway remains at 6-8 months. If you are raising seed, anticipate that this funding will sustain your runway for two years. Approximately a year or 1,5 years, you can move towards the Series A fundraising process. This timeline implies that you should attain Series A metrics within one and a half years, providing a six-month buffer while concluding the round with the next-level investors.

    Series A financing refers to an investment in a startup after it has shown progress in building its business model and demonstrates the potential to grow and generate revenue. It often refers to the first round of venture money a firm raises after seed round and angel investors.

    A healthy runway, representing the number of months a startup can operate before running out of cash, demonstrates financial stability and responsible financial management. Investors are more likely to be interested in companies that clearly understand their financial standing and can sustain operations over the mid to long term.

    A longer runway enhances your negotiating position: It reduces the urgency for immediate funding, giving the startup more negotiating power when discussing valuation, terms, and other aspects of the investment deal. This can result in more favorable terms for the startup.

    Additionally, a sufficient runway provides the startup with ample time during fundraising. This time is essential for due diligence procedures, negotiations, and other steps involved in securing investment. It allows both the startup and investors to thoroughly evaluate the opportunity without the pressure of an imminent cash shortage.

    Be prepared for a lengthy fundraising process

    As you initiate active fundraising, the second point is to prepare for an extended fundraising process from 3 to 6 months at best (sometimes even more). This is particularly crucial in the early stages, considering all due diligence procedures, negotiation processes, and other factors. The size of the funding round can influence the timeline: larger funding rounds often involve more extensive due diligence, negotiations, and legal processes, potentially extending the duration. For example, one of our longer deals took almost five months, while the shortest one was sealed after one month.

    Negotiating the terms of the investment, including valuation and other deal terms, can take time. The back-and-forth negotiations between the startup and investors contribute to the overall duration. And don’t forget about legal processes: finalizing legal agreements and paperwork can add time to the timeline.

    Related: 3 Alternatives to Venture Capital Funding for Startups

    Create a database of investors

    Build a database of 100 or more warm contacts with investors. Initiate conversations with them and strive to convert these interactions into closed deals. Have as many contacts as necessary to achieve the crucial milestones for the next round.

    Having a database of investors is a strategic asset for startups. It streamlines communication, facilitates relationship-building, and allows startups to make informed decisions throughout the fundraising process and beyond.

    The database is also crucial when it comes to your pitch. By understanding different investors’ preferences and investment histories, startups can tailor their pitches more effectively. This personalized approach increases the likelihood of capturing investor interest and aligning with their investment thesis.

    Related: Why Strategic Venture Capital is Thriving in a Founder’s Market

    Transparency is everything

    Be transparent, avoid fabrications, and don’t lie. We all know “Fake it till you make it ” cases, which have made investors more cautious about startups. Transparency is a way for startups to demonstrate accountability and lower the risk of investment for VCs. By providing clear and accurate information, startups show they take responsibility for their actions and decisions, reinforcing a sense of trust. Be truthful because, trust me, distorted information will surface during the Due Diligence process and can become a deal breaker. This could lead to losing investors, and more importantly, it will discourage them from engaging with you.

    Always remember that transparency is not just about sharing information; it’s about fostering a culture of openness, trust, and accountability.

    Zamir Shukho

    Source link

  • How Small Business Owners Can Level Up Their Negotiation Tactics With Venture Capitalists | Entrepreneur

    How Small Business Owners Can Level Up Their Negotiation Tactics With Venture Capitalists | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    When small business owners are looking to secure investment from venture capitalists (VCs), they have to understand the accurate valuation of their business before they enter into negotiations. Otherwise, they end up asking for too much, and investors won’t buy in, or they give away too much as a concession for getting financial backing. You don’t need to let either of those unfortunate scenarios happen to you.

    Instead of guessing and hoping, you must be prepared to negotiate based on honest and accurate information. Even if your business is very small or you’re new to the business world, you don’t need to be intimidated when working with venture capitalists. Understanding your company’s strengths and knowing how to address its weaknesses can take you a long way toward success.

    Choosing the right venture capital opportunities

    One important negotiating tip is to make sure you’re choosing negotiations with the right people. In other words, be selective about your opportunities. You don’t want to send a mass email to many VCs, hoping someone will take interest. If you do that and get replies, it could be that they’re trying to take advantage and think that you’re desperate. Instead, target only a handful of venture capitalists who are a good fit for your needs and have helped companies like yours before.

    Study your options for venture capital and the people who typically support businesses like yours. Look for VCs who work within your industry or who are focused on helping small businesses that are similar in size to what you have. When you find the right people, negotiating with them becomes much easier because you understand one another and have more common interests and goals. Then, you can both see the value of working with one another.

    Related: 8 Key Factors VCs Consider When Evaluating Startup Opportunities

    Options for venture capital you should consider

    It’s essential to consider more than one option or offer if you can. It’s not just the VCs you work with that matters, but also what they give you. Getting additional money to grow your business is essential, but there are other aspects of business development. There are many different ways that a venture capitalist could bring further and ongoing value to your company.

    If there are other areas where your business needs support, don’t be afraid to ask. Some VCs may have connections, offer mentorship or provide additional value beyond cash. Consider these options and if they can help your business succeed. If they’re better than an influx of money only, they might be suitable for your needs. Ideally, you can get cash and other perks, but that depends on the person you’re working with and what they’re willing to offer.

    Focus on post-investment processes

    Before making any deal for venture capital, make sure you’re clear on the decision-making processes that will occur post-investment and what level of control you’ll retain. In other words, you only want to agree to work with a VC that will buy your business out and take it over if that’s what you’re specifically looking for. Getting your questions answered in this area is extremely important.

    You should negotiate this area carefully because too many small business owners get caught up in the idea of earning money to help their business, and they agree to conditions that only benefit them in the short run. Some need to read the contract carefully, or they aren’t willing to ask for more because they fear losing what’s offered. That is your business, so make sure you know what trade-offs you’re agreeing to.

    Remember that value-add is part of the equation

    While the financial backing venture capitalists can bring is highly important, there is a value-added beyond that capital. Working with the right venture capitalists brings you additional opportunities that could be even more significant than the money they’ll invest. When negotiating with a VC, ensure you know what matters to you and why your business is worth investing in. That can help you get a “yes” from the right investor.

    Avi Weisfogel

    Source link

  • Craft a Winning Pitch Deck That Wows Investors | Entrepreneur

    Craft a Winning Pitch Deck That Wows Investors | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    It takes both art and science to create a pitch deck that will result in funding. You must be able to express the idea for your company clearly and concisely while simultaneously appealing to the sensibilities of potential investors. The average time spent by investors studying decks is approximately three minutes and forty-four seconds. Therefore, it is pretty essential to create a fantastic first impression in a short amount of time.

    What investors want in a pitch deck

    Savvy investors look for certain types of information when evaluating pitch decks. Skipping over or only briefly glossing over these key details can make or break your ability to secure funding. A pitch deck gives potential investors a thorough grasp of your company. Seeking an emotional bond that goes beyond financial gain, they inquire about the goals and objectives of your organization. They require a concise synopsis of the product or service that highlights its special qualities and advantages. A thorough target customer profile that goes beyond demographics to understand their challenges and perspectives is also necessary for investors. They are looking for reliable total addressable market statistics as well as an accurate analysis of the competition environment. It is essential to have a well-considered go-to-market plan backed by specific traction measures. Investors want to see your business plan, financial forecasts, goals for fundraising and a profile of your competent staff. Effectively addressing these issues is essential to winning their support for long-term success.

    Related: 3 Key Things You Need to Know About Financing Your Business

    Tips for improving your pitch deck

    Carefully crafting your pitch deck slides and overall presentation can truly make or break your ability to secure startup funding. Keep these tips in mind:

    Know your audience

    Gaining a deep understanding of your target investors should be a top priority when creating your pitch deck. Avoid the rookie mistake of only including information you personally find interesting or want to share about your company. Be ruthlessly audience-centric in your approach.

    Do extensive research into your investors’ interests, motivations, goals and pain points. Conduct stakeholder interviews and analyze past investments to identify their preferences. Adapt your messaging, design choices and content to closely align with your investors’ worldview, not just your own.

    Speak directly to your investors’ needs and concerns. Put yourself in their shoes. Ask yourself, what excites them? What keeps them up at night? What past investments have they made and why? What types of language and messaging appeal to them?

    Emphasize design

    Design choices are critical for an impressive pitch deck. Avoid information overload and leave whitespace for a clean design by prioritizing simplicity and clarity. Begin with a visually appealing presentation template that provides polished and unified graphics that adhere to presentation best practices. Customize these templates to reflect your company’s identity. Use high-resolution, relevant visuals and photos, keep the text concise, and keep fonts, colors and styles consistent throughout. For a clean, professional appearance, use readable word sizes, high-contrast color schemes, and strategic alignments. Consider modest movements and transitions for increased impact, but avoid anything distracting or unprofessional.

    Make the ask clear

    Being direct and unambiguous in requesting funding is critical. Don’t make investors work to figure out what you actually want from them. Clearly state your need for cash and the amount of money you want to raise right away. Explain how you plan to use the money and how it will help the business grow by doing things like hiring engineers or adding more office space. Link the use of the fund to concrete goals. This will give investors a sense of time. Don’t make unrealistic predictions; instead, be honest about your plans and stress the return on investment (ROI) for investors. Avoid using hard-to-understand jargon, and keep your language simple. Also, use graphs and charts to make your ideas easier to understand. Lastly, add “contingency buffers” to your conservative projections to show that you can be flexible and build trust.

    Tell a compelling story

    Structure your content strategically to craft an emotive, memorable narrative. Hook investors’ attention immediately. Make them care about the problem you’re solving. Build intrigue around your company as the hero. Walk investors through your origin story, product innovation, traction and team. Sequence key information and visuals to build momentum, culminating in a call to action to invest.

    Take your audience on an informative yet entertaining journey, mixing logic and emotion. Outline a vision that inspires investors to join your mission.

    Related: 7 Questions Every Founder Should Ask Potential Investors

    Exude passion

    It’s crucial to convey genuine excitement and passion for your company’s purpose, product and growth potential. Investors invest in people and teams as much as they do in raw ideas. Let your authentic enthusiasm shine through. Share what drives your own personal commitment and investment.

    Be professional but also personable and relatable. Storytelling mixed with vulnerability builds an emotional connection that drives investors to take a chance on you. If you don’t show passion and confidence, why would they?

    Using a strategic, audience-centric approach, you can create a pitch deck that genuinely resonates with investors and secures the funding you need to take your startup to the next level. The work required will be well worth it.

    Pritom Das

    Source link

  • Bootstrapping vs. Venture Capital — What’s Best for Your Business? | Entrepreneur

    Bootstrapping vs. Venture Capital — What’s Best for Your Business? | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Every person who’s founded a business knows that financing your idea is one of the hardest but most important early steps. In fact, creating a stable financial nest for your new company might be the difference between a company that thrives and one that fizzles out.

    There are two primary methods of financing: looking for venture capital and bootstrapping. Choosing which financing method you go with is a crucial decision that may have long-term impacts on your business.

    So, how should you decide which method to pursue?

    Related: 9 Advantages Of Bootstrapping Your Company

    Bootstrapping

    Bootstrapping is the process of starting a business with no outside funding. This is an achievable way to start your company because you can focus on building your team and product exactly how you want. Further, bootstrapping typically means you’ll reach an initially smaller audience, so you’ll have time to get feedback from early users before launching to a wide audience.

    The advantages of bootstrapping include a bigger focus on customers. Because you don’t have a huge nest egg, pleasing your early customers is your lifeline. So, you’ll focus more on user retention and building long-term customer relationships.

    Disadvantages of this creative financing option include slower growth. Because you’re funding yourself, you’ll have less access to expensive technology that affords fast production processes. Further, you’ll have to rely more on personal savings or debt in order to jumpstart your business.

    Seeking venture capital

    On the other hand, you may opt to seek venture capital. Venture capital is a type of financing through private equity. In other words, investors put money into your business, betting that it will become a successful venture. By going with venture capital, your business will grow faster, resulting in a quick return on investment.

    The benefits of venture capital include less personal risk. You’re not pouring your own money into the business, so you don’t risk losing your own money. Additionally, getting a loan from a credible investor will increase your own credibility.

    However, drawbacks of venture capital include the expectation to grow quickly and the initial reduction of your stakes as an owner of the business.

    Related: 6 Important Factors Venture Capitalists Consider Before Investing

    Choosing the best financing option

    The decision between bootstrapping and looking for venture capital depends largely on the state of growth that you’re in. In fact, many great investors often want to see evidence that you’ve successfully bootstrapped for the first stage of your business.

    But why? Because successful bootstrapping serves as evidence that you’re smart and hardworking — and that you’ve got a good idea.

    However, say your business is in an industry that requires a large amount of upfront research, such as the biomedical or electric car companies. In this case, you’ll need a huge amount of capital, which will likely require raising money from outside investors. But if you can bootstrap the formation of the company and proof of concept, you’ll face less dilution in the venture capital process as the founder. Further, it means you can embrace a lean-and-mean, efficient philosophy toward operations.

    In this case, you prove that you’re efficient when it comes to using capital. It also proves you’re more resourceful than some business owners and entrepreneurs. Further, it shows that you can be innovative out of necessity.

    So, if you’re creating a good product and your business is successful, you’ll begin to gain traction in your industry. Then, there will inevitably come a time when you start to outgrow the resources that are available to you on your balance sheet. As a result, your own bootstrapping funds will cease to be able to fund your business’s growth as aggressively as necessary.

    When this happens, it’s likely best to raise outside capital. In fact, this is often the best way to take advantage of the opportunity you’ve created for yourself. In this case, you should have an easier time finding funding.

    Why seeking growth capital is easier than seeking startup funding

    Historically, it’s easier to find growth capital than it is to seek startup funding. So, because you’ve bootstrapped for a period of time, you’ve given yourself the opportunity to prove the viability of your idea. As a result, seeking venture capital will be easier as you can approach investors with successful results about your company.

    At the end of the day, how you fund your business is up to you. Your own evaluation of the state of your business, the viability of your product and the potential of your business to generate profit should help you determine which avenue is best for you. Bootstrapping and seeking venture capital both have significant benefits and drawbacks. So, you should evaluate where you are in your business when choosing between the two.

    Most likely, the best option is a combination of the two. Consider the stage that your business is in when deciding whether to choose bootstrapping or seeking venture capital in order to guarantee the highest level of success.

    Related: How I Bootstrapped to $100 Million Without Venture Capital Funding

    Cyrus Claffey

    Source link

  • 5 Ways Startups Can Increase Their Visibility | Entrepreneur

    5 Ways Startups Can Increase Their Visibility | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    During the recent pandemic, many startups had to rethink their business models. In some cases, this meant refocusing on their core business and determining how well they served customer needs. In other cases, startups had to change their business models completely to succeed.

    Now that the world is back to normal, I recommend that startups place a new urgency behind becoming more visible and keeping their momentum going. Methods to do so include attending or speaking at events, competing in startup competitions and establishing new customer or partner relationships. Taking advantage of such opportunities will help startups emerge stronger than ever before from the pandemic.

    1. Target the right events

    Around the world, I see event organizers switching from virtual events to hosting in-person events. I recommend that startups take advantage of this opportunity to increase their visibility. Startups can research which events are the most relevant based on event themes and the typical attendee profile. At technology and business events, attendees often include corporate executives, other startups, potential partners and customers and investors. Most events publish in-depth profiles of their attendees, so startups can study these ahead of time and determine which events are the best fit.

    Before any event, take advantage of event websites and apps to see who is attending. This allows you to reach out to set up networking meetings ahead of time. Journalists often attend business and technology events, so there’s a good chance that startups can meet them and ideally set up press interviews.

    Related: 5 Ways to Make Journalists Actually Want to Publish Your Brand’s Stories

    2. Compete to promote your startup

    I also recommend that startups consider competing in startup competitions to raise the visibility of the business and its founders. Even if you don’t win, you get to pitch your business, fine-tune your elevator pitch and network with attendees – including other competitors, judges, investors and journalists.

    Typical opportunities include:

    • Business plan competitions are offered by MBA programs, which offer startups with a connection to the school to present their business plans and compete to win.
    • Pitch competitions are offered by leading technology events around the world, such as Collision, Web Summit, Startup Grind and The Next Web. Startups who compete typically take the stage to pitch their ideas in front of the event audience.
    • Startup competitions allow startups to compete on a local, regional, national or international basis. At the Startup World Cup, for example, startups compete at 70+ regional competitions worldwide. The grand finale winner earns a $1 million investment prize.

    Related: 8 Business Titans Reveal the Best Social Media Tactics to Promote Your Company

    3. Build new relationships

    While virtual meetings have their place, there’s nothing like meeting in person to build genuine, long-term relationships. Forbes Insights reports that 85% of people reported building stronger, more meaningful business relationships with people they’ve met face-to-face. When I attend events and competitions, I often meet influential people from different walks of life that I would otherwise not meet. Startups should take advantage of such opportunities and either ask for introductions or just introduce themselves. My business relationships with partners, startups, portfolio companies and journalists started with a casual introduction and in-person meeting.

    4. Publish thought leadership content

    Another good way startups can increase their visibility is by publishing thought leadership content. I often advise startup founders to write about what they know – whether about new technologies, business trends or leadership advice. This allows the author to establish themselves as an expert in one or more topics. The press might notice such content, and it often opens the door to new business relationships.

    Research shows that thought leadership works. In fact, 88 % of decision-makers surveyed by Edelman and LinkedIn think that thought leadership effectively improves their perceptions of an organization. Business-to-business decision-makers said that high-quality thought leadership strengthens a company’s reputation and positively impacts requests for proposal invitations, wins, pricing and cross-selling that occurs post-sale.

    Writing thought leadership content can take different forms. The most straightforward method is to write an article on LinkedIn, populate social media or use a self-publishing channel. Experts can also submit their articles to local, regional or national publications that accept contributed content. Doing so will help a startup founder share his or her expertise without generating news, which is typically required to get press coverage. Thought leadership content goes beyond articles. On the technical side, startup founders — or other experts, including chief technology articles — can publish technical articles or research findings. On the creative side, entrepreneurs can create short-form videos that demonstrate their expertise while entertaining the audience.

    Related: So You Want to Be a Thought Leader? Here are 5 Steps to Take

    5. Continue your momentum

    Now that it’s possible to meet people in person and attend live events, I recommend that startups work hard to increase their visibility and maintain their business momentum. Don’t sit back and hope that business will come to you. Put yourself out there and take advantage of opportunities to attend events, network, compete and build new relationships. Each can help startups grow more quickly, enabling them to capitalize on their innovative ideas and ultimately make the world a better place.

    Anis Uzzaman

    Source link

  • How I Bootstrapped to $100 Million Without VC Funding | Entrepreneur

    How I Bootstrapped to $100 Million Without VC Funding | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Venture capital (VC) funding has plummeted in 2023 due to high interest rates and less enthusiasm from investors. Research shows that VC funding almost halved globally in the first six months of this year, ushering in what some have called a VC winter.

    Despite this, entrepreneurs shouldn’t give up hope of making their dreams a reality. Even though VC funding has slowed to a trickle, good ideas to launch a successful business have not.

    You don’t have to immediately go into debt to start a business — I didn’t. All I had when I started was a phone, a computer and my own personal credit cards. I took my idea, ran with it, and now we’re bringing in over $100 million in annual revenue.

    Of course, it’s always more ideal when you have the help, but there are ways to jump-start your business without VC funding, and I’ll give you some pointers.

    Related: How This Entrepreneur Went Global Without VC Funding

    Hit the reset button on all of your expectations

    You don’t need a pile of cash to get started. In truth, there is some benefit to going at it alone. Without investors at your side pumping influence into your company, you have full control and less pressure from outside forces.

    But the consequence of this is adjusting your expectations in the beginning to get things moving. After all, Steve Jobs lived in his parents’ garage for years while developing his computers.

    Starting a business is a difficult undertaking and greatly affects your work-life balance and day-to-day comforts. When I started PostcardMania in 1998, I drove an old Nissan Pathfinder that was paid for (so I didn’t have a car payment), didn’t have a weekly salary, and I didn’t go on vacation. I worked very long days, seven days a week.

    At times, it was difficult to pay for living expenses, so I negotiated repayment terms to cover bills and maxed out a credit card or two to get by. I even bartered a room in my home to get free childcare because I had two young children at the time.

    I was funneling as much money as I could into PostcardMania, and once we had enough clients to get a building, I took money out of my own home to help pay for it. After about five years — once we finally reached eight figures in annual revenue — I finally decided to reward myself with a little luxury: a Mercedes convertible.

    Everyone wants to skip the hardship and get to the part where they become a millionaire. Overnight success stories hardly ever happen though, so strap in and get ready for some challenges. The hard work will be worth it to reach your destination.

    Related: You Don’t Need VC Funding to Grow Your Startup. Here’s How to Turn Customers Into Investors.

    Market your business more than most people think is sane

    Oftentimes, people look at large companies with huge ad budgets and think, “Well of course they spend a ton on advertising — they have the money to!”

    What most people (even entrepreneurs) don’t realize is that those companies are spending big chunks of their revenue on marketing out of necessity, not luxury.

    Another hard truth: Investing hard-won money in marketing doesn’t always result in huge returns. Any marketing strategy you use to generate leads, like Facebook advertising, podcast sponsorships or direct mail, is not 100% guaranteed to deliver results. It’s a constant, ever-evolving game of figuring out what is working and what isn’t.

    That is one reason why many business owners are so reluctant to spend money on marketing services. It’s not a straightforward purchase like buying work boots or supplies.

    You’re going to win some, and you’re going to lose some.

    It takes time and effort to find that special marketing formula for your business that works and brings in revenue. This is also why it’s so important to invest in quality marketing services, stay consistent with it over long periods of time and test multiple methods all at once to see what works best.

    The Chamber of Commerce, a research company for entrepreneurs, states poor marketing initiatives as the #1 reason for small business failure. I can confirm this throughout my 25 years of experience serving small business owners. The ones that thrive don’t give up on marketing. In fact, they spend insane amounts of their resources on it.

    Related: Can You Scale a Startup Without Venture Investment?

    Cultivate and maintain the best talent with a meaningful business purpose

    Promoting my right-hand woman, Melissa Bradshaw, to president of PostcardMania was a huge moment for me. I remember when I first started my business — with her right there by my side from day one — she helped drive my kids to school and answer phones. Today, she’s buying large digital printing presses and establishing entire new departments in my company.

    She’s the perfect example of why you need to focus on finding the right people and then allow them to grow into the roles they were meant to hold. Not only was Melissa a key person in helping me make my dream into a reality, she also paved the way for finding more people to join us and turn PostcardMania into the thriving business it is today.

    Melissa has two key qualities that I look for in every employee at PostcardMania: willingness and ownership. Willingness to do whatever is necessary to get the job done and the desire to take full ownership of any task she took on. When you are building a business, you need to find people who not only have the right skills for the job but also passion for your purpose.

    If you want your staff to take ownership, you have to offer them more than just a J-O-B, and you have to allow them the autonomy to make decisions necessary to get their job done. In addition to that, establish a purpose for your business that goes beyond offering the “the best” products or services. At my business, we sell marketing services, but our purpose is to help small businesses grow, because a strong small business class is a better economy for all of us. And we feel it! We love when our clients succeed!

    We’ve focused on hiring people who believe in this purpose for years, and we recently reached an all-time high for retention.

    Lastly, once you have those people, treat them like gold, and don’t be afraid to give them space for their own successes and failures. I’ve had my share, but they’ve made me into the person I am today.

    Joy Gendusa

    Source link

  • To Secure VC Funding, Your Pitch Deck Must Include These 5 Things | Entrepreneur

    To Secure VC Funding, Your Pitch Deck Must Include These 5 Things | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Venture capitalists are always on the lookout for the next big thing, and most of them review hundreds of decks monthly. Seasoned VCs need 30 seconds to decide whether the pitch deck is worthy and whether they should proceed and arrange a meeting with the founder.

    If you’re an entrepreneur looking for VC funding, you need to understand what investors are looking for in a company before they decide to invest. Here are five things that should be in your deck, without which Leta Capital won’t invest in your company.

    Related: Seeking Funding? Here Are Five Tips for Creating an Effective Pitch Deck

    1. A clear and compelling problem statement in conjunction with the timing

    First, you sell the problem, not the decision. The market need, not the product. VCs are looking for companies that solve real problems for real people. Your deck should clearly articulate the current state your company is changing, why it matters and then how you do it. The problem statement should be clear, concise and compelling. It should show that you’ve done your research and understand your target market. For example, Airbnb’s problem statement was: “People need affordable, safe, and unique accommodations when they travel.” This statement makes clear that Airbnb is solving a real problem in the travel industry. Moreover, people travel as much as ever before, so the timing was perfect.

    2. Realistic projections and a scalable model

    There is nothing worse than unrealistic and unprovable projections. If you claim that today you have $10k MRR and two customers, but next year you will make millions, and in 5 years, you will have an IPO, no one will believe you. You just don’t have enough data to convince people! Keep in mind that VCs want to invest in companies that can scale and generate significant returns on their investment. Your deck should show that you have a clear and scalable business model that can generate revenue and profit over time. That is why your traction, your business model and your projections should match.

    3. Full focus and commitment from the founders

    VCs want to invest in companies that have a strong team with a track record of success. But even more than that, VCs want to see the absolute commitment of the founders if we are talking about seed/series A stages when entrepreneurs need to work really hard and invest all the energy and time to boost their startup. Of course, the deck should show that you have a team with the skills and experience necessary to execute on your business plan. The red flag here is if you say that you need to raise money to hire a technical co-founder or lead engineer. In that case, VCs will think that you can’t attract and convince technical talent. You should figure out how to convince people to join you on your own — otherwise, how will you create a game-changing company?

    Related: Five Best Pitch Decks of All Time

    4. Competitive advantage and a POD among competitors

    No competition? No market. You should admit that if the problem exists, someone is already solving it somehow. Don’t belittle competitors, and don’t say they are stupid (especially corporations or startups with a proven track record or huge funding). However, VCs want to invest in companies that have a competitive advantage over their competitors.

    Your deck should show that you have a unique product or service that sets you apart from your competition. For example, Tesla disrupted the automotive industry by offering electric vehicles that were more environmentally friendly and had better performance than traditional gas-powered cars. Their competitive advantage and POD were their focus on innovation, sustainability and design.

    5. A clear path to exit

    VCs want to invest in companies that have a clear path to exit. Of course, investors don’t want to fund founders who haven’t built the company already want to sell it, but still, your deck should show that you have a plan for how investors can eventually make a return on their investment. This is an art, but nobody promised this would be easy!

    If you’re looking to secure VC funding, your deck needs to show that you have chosen the perfect timing to solve a real problem, that you have a scalable business model executed by a strong and dedicated team, you have a competitive advantage, and your company will give an investor the desired returns after 5-10 years. By including these five things in your deck, you can increase your chances of securing the funding you need to take your company to the next level.

    Related: How a VC Wants to Be Pitched

    Alexander Chachava

    Source link

  • Creative Ways Startups Can Earn Funding in Tough Economic Times | Entrepreneur

    Creative Ways Startups Can Earn Funding in Tough Economic Times | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    In a declining economy, startups face an uphill battle when it comes to securing funding. Despite financial hardships, with resourcefulness, innovation and strategic planning, entrepreneurs can explore various avenues to obtain the necessary capital for their ventures.

    Venture-backed startups have long been the bedrock of innovation, driving economic growth and shaping industries. In recent years, there has been a noticeable decline in the number of venture-backed small businesses. Let’s delve into the reasons behind this decline, exploring the changing landscape of entrepreneurship and the factors that have contributed to this trend:

    Related: How to Access Capital in an Economic Downturn

    Why startups are losing speed

    1. Saturation of the market: One key factor contributing to the decline of venture-backed startups is the saturation of the market. The startup ecosystem has experienced an unprecedented boom over the past decade, leading to an influx of companies competing for funding and market share. With numerous startups vying for attention, venture capitalists have become more cautious in their investments, opting to support only the most promising and disruptive ventures. Consequently, startups are finding it increasingly difficult to secure funding, especially those operating in crowded markets.

    2. Risk aversion and investor preference: In recent years, there has been a noticeable shift in investor preference towards late-stage and growth-stage startups. Venture capitalists are more inclined to invest in established companies that have demonstrated a solid track record of growth and revenue generation. This risk-averse behavior has resulted in reduced funding opportunities for early-stage startups, which typically require substantial capital injections to grow and scale. The scarcity of funding options has undoubtedly hindered the formation and growth of new ventures.

    3. Changing regulatory landscape: Regulatory factors have also played a role in the decline of venture-backed startups. Governments around the world have implemented tighter regulations and compliance requirements in the wake of financial crises and scandals. While these measures aim to protect investors and consumers, they have inadvertently increased the barriers to entry for startups. Compliance costs and legal complexities have become significant hurdles for entrepreneurs, particularly those operating in heavily regulated industries such as fintech, healthcare and transportation. The burden of navigating complex regulatory frameworks has deterred many potential founders from pursuing venture-backed startups.

    4. Alternative funding sources: The decline in venture-backed startups can also be attributed to the availability of alternative funding sources. Traditional venture capital is no longer the sole option for entrepreneurs seeking funding. Crowdfunding platforms, angel investors and corporate venture capital funds have emerged as viable alternatives, providing capital and support to startups. Additionally, the rise of initial coin offerings (ICOs) and blockchain technology has enabled entrepreneurs to raise funds through token sales. These alternative funding options have diversified the startup funding landscape, reducing the reliance on traditional venture capital and contributing to the decline of venture-backed startups.

    5. Changing entrepreneurial landscape: The nature of entrepreneurship itself has evolved over time. With the democratization of technology, the cost of starting a business has decreased, making it easier for individuals to embark on entrepreneurial endeavors. This has led to a rise in bootstrapped startups and self-funded ventures, which may not seek venture capital funding at all. Furthermore, the gig economy and freelance work have attracted individuals who prefer independent work arrangements over building traditional venture-backed startups. The changing entrepreneurial landscape has shifted the focus away from venture-backed startups, contributing to their decline.

    Although we have seen a decline in the number of venture-backed, it’s important to know that there are numerous other ways for startups to garner funding.

    Related: Raising Funding in a Downturn Isn’t Impossible — I Did It (and You Can, Too).

    Creative ways to earn funding

    Below are several creative ways that startups can earn funding even in challenging economic times:

    1. Bootstrapping and self-funding: One of the most accessible and immediate ways for startups to earn funding in a declining economy is through bootstrapping and self-funding. By leveraging personal savings, credit lines or personal assets, entrepreneurs can finance their ventures without relying on external investors. While bootstrapping may require sacrifices and careful financial management, it grants startups full control over their operations and minimizes the need to dilute equity at an early stage. Additionally, self-funding demonstrates commitment and resilience, which can attract potential investors in the future.

    2. Strategic partnerships and alliances: Startups can explore strategic partnerships and alliances as a means to secure funding in a declining economy. By identifying synergistic organizations or established companies in their industry, startups can propose mutually beneficial collaborations. Such partnerships may involve strategic investments, joint ventures or co-development agreements, which provide startups with access to funding, resources, expertise and a broader customer base. These alliances can not only alleviate financial constraints but also enhance market credibility and pave the way for future growth.

    3. Government grants and programs: Governments often offer grants, incentives and programs to stimulate innovation and entrepreneurship, even during economic downturns. Startups can tap into these resources by researching and applying for grants specifically tailored to their industry or innovative projects. These grants can provide much-needed funding, mentorship and networking opportunities. Additionally, government-backed programs, such as incubators and accelerators, offer access to valuable resources, expertise and potential investors, further aiding startups in their quest for funding.

    4. Crowdfunding: Crowdfunding has emerged as a popular and effective funding avenue for startups in recent years. It involves raising capital from a large pool of individuals through online platforms. In a declining economy, crowdfunding allows startups to bypass traditional funding sources by directly appealing to potential customers, supporters and like-minded individuals who believe in their vision. By offering early access to products, exclusive perks or equity shares, startups can incentivize individuals to contribute to their fundraising campaign. Crowdfunding not only provides funding but also helps validate the market demand for a startup’s product or service.

    5. Impact investment and social funding: In the face of economic decline, there has been a growing focus on impact investment and socially responsible funding. Investors and funds dedicated to making a positive social or environmental impact are actively seeking startups with a strong mission and purpose. By aligning their business models with social or environmental goals, startups can attract impact investors who are willing to provide funding in exchange for measurable social or environmental outcomes. Social crowdfunding platforms and impact-focused venture capital firms offer additional opportunities for startups to secure funding while making a positive difference in the world.

    Related: Think You Need Venture Capital Backing to Start Your Business? Think Again.

    While venture-backed startups have long been the driving force behind innovation and economic growth, their decline in recent years can be attributed to various factors. Saturation of the market, investor preference for late-stage companies, changing regulatory landscape, availability of alternative funding sources and a changing entrepreneurial landscape have all played a role. Despite this decline, entrepreneurship remains vibrant, with new models and funding mechanisms continuing to shape the startup ecosystem.

    In a declining economy, startups must adopt creative approaches to secure funding for their ventures. Bootstrapping, strategic partnerships, government grants, crowdfunding and impact investment are just a few avenues that entrepreneurs can explore. By leveraging these funding sources, startups can mitigate the challenges posed by economic downturns and pave the way for sustainable growth and success.

    As the landscape evolves, it is crucial for entrepreneurs and investors to adapt and embrace new opportunities to foster innovation and support the next generation of disruptors. Furthermore, entrepreneurs should remain adaptable, resourceful and open to exploring new opportunities as the economic landscape evolves.

    Michael Stagno

    Source link

  • AI Is Becoming a Game-Changer in Startup Fundraising | Entrepreneur

    AI Is Becoming a Game-Changer in Startup Fundraising | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Navigating the world of startup fundraising can often feel like walking a tightrope, balancing a compelling pitch with hard data, all while trying to predict what investors want to hear.

    The good news? Artificial intelligence (AI) is here to lend a helping hand, providing startups with an advanced toolkit to make informed decisions and craft persuasive pitches.

    Related: Here’s How AI Is Changing VC Funding

    AI in startup fundraising

    AI, in the context of startup fundraising, refers to data-driven technologies that analyze patterns, predict trends and provide actionable insights. AI tools can help evaluate the potential of a startup based on various factors, such as market trends, competitive landscape and financial projections. These tools are increasingly being used by investors to inform their decisions and by startups to refine their strategies and pitches.

    AI’s influence is not just limited to data analysis; it’s also creating a new frontier in how startups connect with potential investors. AI-powered platforms are transforming the traditional fundraising process, providing efficient, data-driven matchmaking between startups and investors.

    The impact of AI on investor decisions

    Investors have always used data as the backbone of their decisions, but with the surge of AI technologies, this reliance has deepened and evolved. AI is stepping up to reshape the decision-making process, offering advanced capabilities in areas that are key to investor deliberations.

    Firstly, AI assists in examining a startup’s financial data more thoroughly. AI algorithms can quickly sift through vast amounts of financial data, decoding patterns and identifying insights that might be less obvious otherwise. This results in an in-depth understanding of a startup’s financial position, which is fundamental for investors.

    Secondly, AI is invaluable in evaluating potential market growth. By utilizing machine learning and predictive analytics, AI can anticipate market trends and growth with superior accuracy. This helps investors gain an insight into the scalability of a startup and its potential to claim a share of the market.

    Thirdly, assessing the competitive landscape is another domain where AI’s prowess shines. With AI, real-time insights into the strategies and market positions of competitors can be gleaned, helping investors understand where a startup stands in its market, and its capacity to endure competitive pressures.

    Finally, AI helps in predicting a startup’s success by comparing it with similar businesses. By drawing on data from businesses with comparable models, AI can estimate the potential risks and returns of investing in a startup. This can be crucial for investors in determining the future trajectory of a startup.

    Related: 5 Things That Have Changed in Startup Pitching This Year

    How AI can help startups with fundraising

    Artificial intelligence is not just a powerful tool for investors; it’s also a transformative force for startups, particularly in the fundraising landscape. Here’s how AI can help startups raise the necessary capital:

    AI can guide startups in developing a data-driven pitch, harnessing the power of predictive analytics to illustrate potential growth and returns. For instance, by analyzing market trends, competitors and customer behavior, AI can furnish startups with the knowledge needed to craft a compelling, evidence-backed argument for their business.

    Furthermore, AI can take a startup’s financial modeling to the next level. Leveraging machine learning algorithms, AI can predict future revenue streams and cash flow with a degree of accuracy that’s traditionally been hard to achieve. By doing so, it generates a realistic, granular picture of the business’s potential — something that’s crucial for both the startup seeking funds and the investor looking to allocate capital wisely.

    The insights gleaned from AI not only support the crafting of persuasive pitches but also inform strategic decisions, help identify growth opportunities and potentially foresee challenges. Thus, AI’s role in startup fundraising is multifaceted, offering key support in the journey from early-stage venture to successful business.

    Matchmaking with investors

    AI-powered platforms, such as Crunchbase or AngelList, serve as efficient matchmakers between startups and investors. These platforms leverage AI to analyze various factors — the startup’s business model, industry sector, and fundraising stage, among others — to identify and connect with the investors best suited to a startup’s unique needs. This advanced matching capability helps to streamline the fundraising process, increasing its efficiency and effectiveness.

    Beyond initial introductions, AI tools can also assist startups in maintaining robust relationships with their investors. They can automate the process of providing regular updates, tracking critical performance indicators and even forecasting potential issues. This constant communication loop not only keeps investors informed but also nurtures trust and transparency between the parties involved.

    Related: 6 Ways To Raise Capital For Your Startup In 2023

    Pitching to AI-savvy investors

    In the contemporary AI-driven era, it’s crucial for startups to know how to effectively pitch to AI-informed investors. This isn’t just about demonstrating an understanding of AI’s technical aspects. It also involves clearly articulating its impact and relevance to their business.

    Startups must show that they grasp how AI can transform various aspects of their operations. This may include improving efficiencies, optimizing customer experiences, streamlining processes or driving innovation. The ability to comprehend and communicate the potential implications of AI can prove to be a game-changer in gaining an investor’s interest and confidence.

    Moreover, startups should underscore how they are already utilizing AI to bolster their operations and spur growth. Concrete examples of AI applications in their business strategy not only indicate a startup’s tech-savviness but also its ability to stay ahead of the curve. This can be particularly appealing to investors who are always on the lookout for businesses that leverage cutting-edge technologies to gain a competitive edge.

    In the rapidly evolving startup ecosystem, AI is a potent tool, offering a competitive edge in fundraising. It empowers startups to make data-driven decisions, tailor their pitches and connect with the right investors. But as with any tool, its effectiveness depends on how well it’s used.

    As such, startups need to invest in understanding AI and incorporating it into their fundraising strategy. This involves not just leveraging AI tools but also developing an AI-literate team and an AI-friendly culture. This way, startups can use AI not just as a tool for fundraising, but as a driver of innovation and growth.

    Yan Katcharovski

    Source link

  • How Startups Can Manage Their Cash Better, According to a VC | Entrepreneur

    How Startups Can Manage Their Cash Better, According to a VC | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    The bankruptcy of Silicon Valley Bank caused a great deal of stress for many startup founders. Although U.S. financial regulators intervened and took charge of customer deposits, the incident has shown that financial markets remain unstable.

    Amidst a banking panic, Signature Bank has suffered bankruptcy, while Credit Suisse is being acquired by its competitor UBS; First Republic Bank’s customers have recently withdrawn over $100 billion.

    To avoid being swept up in a bank run like this, startups should concentrate on getting better at cash management and fostering strong relationships with banks. That’s something VCs are going to pay more and more attention to when deciding to invest in a startup.

    Here are four tips that startups could take to minimize their financial exposure.

    Tip #1 — Put money in multiple banks

    When the economy is unstable, the likelihood of bank failures rises due to factors such as higher interest rates, increased risk of loan defaults, investment losses, large customer withdrawals and stricter regulations by the government.

    But even in steady economic conditions, banks may decide to freeze or close accounts for security or other reasons. That’s why relying on a single bank account is never a safe option.

    Businesses should distribute their funds across two-four non-affiliated banks, preferably in different countries, while closely monitoring the activity of each account. I’d recommend keeping two checking accounts with sufficient cash to cover 2-3 months of expenses in each one and a third account for investing any surplus cash in safe and liquid assets.

    Those who find managing more than three accounts challenging should have at least two. One account can be designated for regular business operations such as payroll and supplier payments, while the other can be used for holding the remaining funds.

    For startups with a balance sheet exceeding $3 million, it is advisable to open a savings account with a reputable and stable A-level bank such as JPMorgan Chase & Co or Bank of America in the United States, Deutsche Bank or Crédit Agricole in Europe.

    Consider buying Treasury Bills (or T-Bills), U.S. government bonds issued in U.S. dollars with a maturity period from one month to one year, which also have an annual yield of up to 5%. If a bank goes belly-up, T-bills won’t be impacted by the bank’s financial position because they are kept independently from the bank’s finances.

    A clever idea would be to create an investment plan that prioritizes capital preservation rather than aiming solely to profit. Never hold the money of your VCs in cryptocurrency — it’s too risky.

    Related: What Is A Cash Management Account?

    Tip #2 — Research countries, not just banks

    When you choose a bank for your startup, don’t just look at how secure it is. Think about other factors that could make it stable or unstable in a particular country, especially if there were times when banks went bust there.

    To find a bank in the right place, learn about the local rules and laws that control banks there. Evaluate economic and political climate, including inflation rates, the amount of interest banks charge and the stability of the currency and banks in that location.

    Related: Choosing A Bank For Your Startup: Here’s Some Things To Consider

    Tip #3 — Learn about deposit insurance provided by regulators, institutions

    Different countries have their regulators that manage their financial systems. For instance, the United States has the Federal Deposit Insurance Corporation, and the United Kingdom has the Financial Services Compensation Scheme.

    These regulators are intended to safeguard bank deposits to a certain extent by providing insurance in case of bank failure.

    The U.S. The FDIC insurance typically covers up to $250,000 per depositor per bank for individuals and businesses. Nonetheless, certain financial companies may provide additional deposit insurance options.

    In the wake of SVB’s collapse, U.S.-based financial platform Brex has upped its FDIC insurance limit for companies to $2.25 million. Meanwhile, neobank Mercury has increased deposit insurance for its customers to up to $3 million.

    Other ways to increase deposit insurance coverage are using certificates of deposit accounts (CDARS), credit unions, or the MaxSafe program, allowing to increase FDIC insurance to $3.75 million.

    The U.K. U.K.-based startups can obtain up to £85,000 deposit insurance coverage per bank, per depositor, via the Financial Services Compensation Scheme (FSCS).

    Private banks and building societies (a type of financial institution) offer deposit insurance above the FSCS limit by joining the FSCS Temporary High Balance Scheme (THBS). It may offer extra protection for deposits of up to £1 million for up to six months.

    Europe. In the European Union (EU), all member countries must have a deposit guarantee scheme (DGS) to safeguard customers in case a bank fails. DGS usually offers coverage of up to €100,000 per depositor, per bank. However, non-EU banks may not offer deposit insurance for companies at all.

    Some European countries — both EU and non-EU — have supplementary insurance opportunities beyond the DGS. In Norway, deposits of up to 2 million kroner per depositor, per bank are protected by Bankenes Sikringsfond. In Germany, many private banks are part of the Association of German Banks, which provides insurance coverage for deposits of up to €50 million.

    Due to the lengthy process of opening an account with an A-level bank (6-18 months), many startups prefer e-money institutions such as Wise, Stripe or PayPal instead. In this case, the account opening process is faster (a few weeks) and offers a more seamless customer experience. But financial regulators don’t normally protect the funds kept there.

    Related: Collapsed Silicon Valley Bank Finds a Buyer

    Tip #4 — Warm banks up to you

    By developing a rapport with your bank, you can benefit from more individualized updates on the status of your accounts and investments. One way to strengthen this relationship is by creating an investment account and buying shares or debt obligations through the bank.

    To establish a favorable relationship with banks, consider entrusting them with the management of your funds. High Net Worth Individuals (HNWIs), who possess investable assets of at least $1 million, are the main source of profit for banks through their money management services. In CEE, the standard commission for investment management services averages around 1-1.5%.

    In my experience as an investor, startups that adopt smart cash management strategies have the edge over their rivals when trying to raise funds.

    Create a plan for how much money you will have/need for the upcoming month; check and update it every day. Keep track of when you have to pay bills and when you expect to receive funds. Make sure to have a process for approving money transfers to avoid fraud; try to use the “four eyes principle.”

    If you anticipate any financial difficulties, notify your executive team and board, and reserve a credit line from one of your key banks to support the company’s operations for at least six months (but use it only if necessary).

    Related: Beyond the Basics: 5 Surprising Qualities Investors Seek in a Winning Team

    Vital Laptenok

    Source link

  • How Raise Funds As a Startup | Entrepreneur

    How Raise Funds As a Startup | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    The world’s best surfers will tell you that to be incredible, you have to wait for the right wave. Every wave you choose to paddle consumes an incredible amount of energy, time and mental concentration. If you’re able to channel all of your skill and stamina into that one beautiful wave, you will be much more successful than trying to ride 50 bad ones.

    As a new founder, you don’t have the resources to catch every wave — nor is it prudent to do so. You must be calculated and strategic so you can make the most of your chance to make it.

    The traditional bank route

    For startups considering going the bank route, this probably isn’t your wave. With interest rates soaring to nearly double what they were last year, free money is no longer an option. Most startups don’t have the luxury of deep pockets to begin with, making traditional lending unviable. One of the few exceptions is for those running a minority-owned business or a member of a group with historic barriers to capital; in these cases, SBA loans are still worth considering because of their adjusted terms.

    If you don’t qualify for SBA and the bank route is your only option, here’s a word of caution: wait until the rates stabilize. As with any market instability, the next twelve months will tell the country’s financial future.

    For those unwilling to wait out the storm, think about basic accounting: if your company is running at 50% gross profit and 30% net profit, don’t make the mistake of assuming that a 4% increase in sales will make up for a 4% increase in interest on your loan. It won’t. You need to increase your profit by 4% — you need to increase your sales by 12-15%. If you choose to lock yourself into a high-interest loan, be prepared with a solid money strategy and solid reasoning that justifies giving away that much money.

    Another option worth considering is a line of credit. They’re easier to manage, and you can see your borrowed total shrinking, similar to a checking account. At any given time, entrepreneurs are juggling a thousand different things to make their business successful, so do anything you can to simplify the financials.

    Related: 4 Ways to Deal With High Interest Rates in Every Part of Your Business

    The VC route

    While the bank wants to know about your assets before writing you a check, VCs must be approached differently. Your asset is your three-year business plan, and it better be rock solid. As an investor, I’m looking for founders willing to eat, sleep, drink, and marry their business — and I want to make sure I know all of that about you in the first three minutes we’re talking. That may sound like a lot of pressure, and it is — so is starting a successful business from the ground up.

    As a VC, I’m looking for a founder who knows the market, their product, how much money they need and what they will spend it on. The minutiae can come later, but if you can’t convince me that you’re fired up about your idea, and you’ve done your homework, it’s a waste of both of our time. One of the first red flags is when entrepreneurs aren’t willing to commit all their time and money to their own endeavors. If you’re hoping to maintain another job or want VCs to invest money into a plan you’re not willing to invest in yourself, you have the wrong approach.

    When you approach a VC, ask for more than you need. The person who comes to me and tells me they need $300k but is asking for $500k is the person I want to talk to. At the end of the year, entrepreneurs often find themselves back at the VC’s door asking for more money simply because they failed to plan for how much they’d realistically need. Asking for the wrong amount the first time is a mistake, and that second investment will cost you significantly more.

    Related: 3 Ways to Raise Capital and Take Your Business to the Next Level

    Alternative options

    Numerous micro-funding organizations have popped up in the last few years. These non-bank lenders are gaining popularity, offering microloans for anything under $50,000 with a streamlined credit process. Unlike traditional loans, these microloans are designed to give small business owners a leg up without drowning them in debt, making it a smart option for entrepreneurs who only need a small amount of money to launch their businesses.

    Related: What is the Federal Funds Rate and How Does it Impact Loan Rates?

    Preparedness is your biggest asset

    To secure funding for your business, the first step isn’t to ask for money; it’s to determine exactly how much you’ll need. I always encourage entrepreneurs to create an expense budget that includes all their bills for one year. Whatever budget you come up with, increase that amount by 15% because you will need a cushion. Whatever you forecast in revenue, deduct 15% because you likely won’t hit your revenue targets. Within that final number lies the truth of how much lending you need.

    This isn’t pessimistic; it’s just the way that it works — you figure out what’s reasonable, and then you add a safety net for everything unforeseen. We tend to overvalue our ability to create something quickly without any hiccups. By accounting for these contingencies before they crop up, you can better prepare to face them when they inevitably appear.

    Plan your move wisely

    Where and how you choose to obtain funding could make or break your business. Take a breath, look for advice, and try to make smart financial decisions. If the time doesn’t feel right, trust your gut; no one will steal your idea overnight, so it’s OK to wait. As you consider your options, look at the bigger picture, like economic stability, interest rates, and future implications, before making your move. After all, it may be the only move you have.

    Shannon Scott

    Source link

  • 4 Signs That Your Small Business Needs Funding | Entrepreneur

    4 Signs That Your Small Business Needs Funding | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Every small business can agree that securing funding is vital for a small business to grow. Whether you are a fledgling start-up business launching a new product or service, or an established small business striving to maintain profitability, cash is king when it comes to driving the progress of operations.

    Every day, small businesses face unforeseen challenges, with shrinking margins and economic competition making it crucial to allocate sufficient cash flow for a business’s financial health. According to a study by U.S. Bank, 82% of all failed businesses are due to poor cash flow management or a lack of a grasp of cash flow and its importance to its business.

    As a business owner, how do you avoid these catastrophes? With a staggering 90% of all start-ups failing, how can you proactively identify the signs that indicate the need for funding and stay ahead of these warning signals? Here are four signs indicating that it’s time your small business needs funding.

    Related: 10 Expert Tips on Managing Cash Flow as a New Business

    Experiencing gaps in cash flow

    A cash flow gap clearly indicates that your small business requires a funding boost, which occurs when a business pays out cash for expenses but does not receive the expected inflow of money within a reasonable timeframe.

    A prime example of a cash flow gap is a business that needs to purchase supplies to create its products to generate an inventory. After spending the cash on supplies, there is a delay in receiving payment from customers, creating a gap between the outflow and inflow of cash. For instance, if customers pay for the inventory after 30 days (or even worst late payments), the period between the purchase of supplies and the receipt of payment creates the cash flow gap. Consistent widening cash flow gaps can leave your business strapped financially, potentially putting it in a dangerous position if not addressed.

    Related: 80% of Businesses Fail Due To a Lack of Cash. Here are 4 Reasons Why Cash Flow Forecasting Is So Important

    Seasonal downturns in the business

    Seasonal fluctuations pose significant cashflow challenges for many businesses. A typical example is a restaurant operating on a beach in Cape Cod, Massachusetts. During the summer peak months from Memorial Day through Labor Day in September, the restaurant can encounter an endless stream of customers fleeing to the restaurant. Despite an influx of cash coming in, your business could face cash flow challenges between a surge in profits during peak seasons but struggle to maintain financial stability during off-seasons.

    With seasonal downturns and limited cash flow, the challenges of paying overhead costs with employees, rent, utility costs, etc., can create financial instability. Without proper cash flow forecasting, how can your business maintain operations and overcome these financial challenges during the off-season?

    Related: 3 Cash Flow Mistakes to Avoid at All Costs

    The business needs to change

    Every business needs to evolve and adapt to new challenges, as they cannot continue to operate with the same employees and equipment indefinitely. At some point, you need to invest back into the business to promote growth and development.

    For instance, a landscaping company has an initial upfront cost of purchasing equipment before it can hit the ground running. As the company progresses, the equipment may deteriorate and require upgrading to continue serving existing customers or expanding into new areas. Hiring skilled employees or investing in new equipment upgrades will be needed to help expand your capacities. In order for your business to meet these needs, It’s essential to reserve sufficient funds to meet these necessary investments.

    Opportunities happen

    Expecting the unexpected and be ready no matter what is the heartstring of all business owners. It’s unclear what the next card in the deck will reveal, especially when exciting opportunities arise. Hence the need for agility despite the size of your businesses. Small business owners must be particularly vigilant about having enough capital to invest in new opportunities that arise.

    In this constantly changing landscape, your business needs to be in a strong financial position to take advantage of opportunities as they arise. Whether it’s purchasing another business, opening a new location, launching a new product or the immediate need for available capital investment, the ability to act quickly can make all the difference. Without sufficient cash, your businesses can struggle to capitalize on these exciting opportunities, resulting in missed opportunities or financial losses.

    Related: How This New Accounting Feature Can Save Businesses From Fraud and Financial Mishap

    A loan is not the only answer

    The immediate response of a business owner is to reach for a loan application to obtain an injection of cash. However, a business loan isn’t always the best or only solution. One approach to improving your business’s financial situation and reducing the reliance on loans is to implement effective cash flow management tools.

    Cash flow tools can help small business owners track their cash flow, identify high-risk indicators and accurately forecast future financial health. These tools can determine precisely how much capital is needed and how an influx of cash would impact the overall health of your business. By maintaining a healthy cash reserve and minimizing unnecessary expenses, small business owners can make smarter financial decisions, reduce their reliance on loans and improve your business’s financial stability.

    Nick Chandi

    Source link

  • Free Webinar | May 18: 7 Ways to Raise Money to Launch Your Business | Entrepreneur

    Free Webinar | May 18: 7 Ways to Raise Money to Launch Your Business | Entrepreneur

    Crowdfunding, equity financing, grants, or debt financing? Which do you choose to raise money for your business?

    Join our webinar, Bianca B. King, Entrepreneur & Marketing Strategist, teaches you 7 methods that you can use to raise money to launch their companies, including the advantages and disadvantages of each type of funding.

    7 Financing Options

    Equity Financing:

    Debt Financing:

    • Small Business Loans

    • Peer-to-Peer Lending

    Alternative Financing:

    Register now to secure your seat!

    About the Speaker:

    Bianca B. King is an entrepreneur and professional matchmaker on a mission to help women accelerate their success. As the CEO & Founder of the exclusive collective Pretty Damn Ambitious™, Bianca matches high-acheiving women with premier vetted and verified coaches so they can finally amplify their ambitions and achieve the personal growth and professional success they desire. Bianca is also the President and Creative Director of Seven5 Seven3 Marketing Group, a digital marketing agency that has served hundreds of entrepreneurs since 2008.

    Entrepreneur Staff

    Source link

  • When Is the Right Time to Seek Investor Funding? | Entrepreneur

    When Is the Right Time to Seek Investor Funding? | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Bootstrapping is difficult. Investor funding, if done incorrectly, can become a time bomb. So, what direction is best?

    Often, businesses start off with the founders funding them completely. Only a handful of startups are funded in the idea stage. Things can get tough along the way, and often, you’d need to choose whether to continue scratching to stay afloat or seek external funding.

    It’s a tough decision to make. On one hand, founders want to maintain substantial control of their projects. They also don’t want the pressure that comes with handling investors’ money. On the other hand, startups need money to survive and grow to their potential. This is what Harvard professor Noam Wasserman termed “The Founder’s Dilemma.”

    As a founder, you need to know when the time is right to seek and collect investors’ money. This article answers that question.

    Related: 8 Things to Consider to Find the Right Funding Option for Your Startup

    1. Figure out a working model first

    It might fascinate you to know that investors are always ready to sign checks whether the idea looks viable or not. However, investors can put you on a very short leash when they know that your idea isn’t practical enough. They do this by requesting ridiculously high equity.

    As an alternative, you need to perform all your preliminary experiments and find the exact business model that works for you before speaking with investors. It’s no news to founders, though, that finding a working model is not a walk in the park and that experiments often require some capital.

    In the earliest stages, you need to self-fund your idea as you take it through refinement. With inadequate capital, you should consider reaching out to family and friends for support. They are bound to believe in you more than total strangers with fat checks. Nearly 40% of founders follow this route.

    2. Create an MVP

    It’s rare for founders to focus completely on one aspect of a startup. Often, they have to oversee business development, product development, finance and every piece of the project simultaneously.

    While figuring out what variation of the business model works best, founders need to also ensure the product development works out successfully. Until then, it’s best to stay away from outside investors.

    However, some products are capital-intensive and will need big checks to fund them. In such cases, it’s advisable for a founder to create a prototype or a highly specific graphical rendering of the product.

    This provides a crystal clear description of how the product works and conveys some level of confidence to outside investors. With a prototype, your chances of landing an outside investor under favorable terms increase significantly.

    Related: Mistakes To Avoid When Seeking Funding

    3. Ensure it’s time to scale your idea

    You may have an MVP and a model that works on paper, but all those don’t matter until you’ve acquired a few real customers that are willing to pay for your product. By “real customers,” I’m not referring to family relatives and friends.

    If you have a few complete strangers paying to use your product, then you most likely have a practical model and valuable product. At this stage, you need to ensure that your business process is well-documented and can be recreated without smack-dab supervision.

    With all that in place, you can seek outside investor funding to hire more hands to recreate the process en masse.

    I often advise founders to look beyond securing investor funds. Founding a startup is one stage of your career, and the way you approach outside investments can have a significant impact on your reputation in the long run.

    Investors prefer to put their money on founders who have proven records of good investor relations and business success. So, if you’re looking to secure your first-ever funding round, be sure to do it at the right time to avoid jeopardizing your entrepreneurial career.

    Related: How to Know If You Need Funding (and How to Get It)

    Judah Longgrear

    Source link

  • What Happened to All the Medtech Unicorns? | Entrepreneur

    What Happened to All the Medtech Unicorns? | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Medical tech (medtech) startups found themselves flush with cash a couple of years ago for quite obvious reasons. Pandemic-fuelled investment pushed VC funding for medtech and health-focused companies to unforeseen heights, ensuring that exemplary companies creating innovative technology to boost our collective health got the backing they deserved.

    But times have certainly changed. The tech industry now finds itself reckoning with a banking crisis and VCs shifting priorities (and funds) towards scorching hot generative AI projects. That shift has caused funding for early-stage medtech companies to decline significantly, with numbers sliding by the billions across the board for digital health projects.

    Related: Areas in Medtech That Need Innovative Entrepreneurs

    Why is this happening?

    To clarify, the funding well has not completely dried up for medtech projects. But the industry has become far more competitive now that the pandemic has moved to the periphery of public consciousness. But it’s unfair to place the entire blame for VCs pivoting away from medtech solely on the world emerging from COVID; there are other contributing factors driving entrepreneurs and liquidity providers to consider other industries.

    For one, medtech is not a trend-proof industry immune to wider economic conditions. And although the digital health industry has seen a huge boom in the past decade, macro-level trends do eventually shift to something newer and more enthralling. AI has become a scene-stealer in terms of tech funding, and while many medtech companies champion AI use to help upgrade multiple aspects of healthcare, other projects might feel like there’s no outside funding to turn to.

    Another factor that could contribute to the slowdown of VC funding in medtech is the pace at which health developments move, particularly in testing and regulation. While blockchain and AI projects can enjoy building in a regulatory gray area (for now), any medtech device or solution has to undergo strict review to become widely available to consumers. This is where we often see a collision when revenue-driven startup ideologies and rigorous healthcare standards meet, whether it’s the FDA or another regulatory body.

    With this in mind, it makes sense as to why the VC mentality doesn’t always mesh well with an industry that relies heavily on regulatory clearance to progress. A growth-minded VC familiar with the nimble pace of a spritely tech startup is probably in for a rude awakening when a medtech company can’t grow at the speed it wants it to.

    But there are a few ways for medtech companies to adapt in a funding drought, whether it’s exploring different funding sources or reevaluating their value proposition.

    Related: 3 Alternatives to Venture Capital Funding for Startups

    What can medtech projects do?

    In a way, the medtech industry is much better equipped to survive a downturn in outside funding because it was one of the first modern tech sectors to learn about the importance of flushing out bad actors. It’s a harsh lesson that nascent industries such as crypto now face and generative AI projects will likely face in the future as the moral and societal problems of its development are called into question, even by its industry peers.

    And when a scandal involving generative AI eventually does happen, outside funding will inevitably turn back towards industries that could withstand it the first few times.

    It’s never a good indicator when companies in burgeoning tech sectors make cuts to their ethics teams; this is another leg up that medtech companies have over other industries. The ghost of Theranos still looms large over any public-facing medtech development, which is shockingly effective at keeping most projects ethically in line. Medtech founders understand that you can’t build products that affect people’s health with an MBA and a dream; it is a field that requires some sort of background and experience to execute effectively.

    That being said, there are also spaces in medtech development for entrepreneurs to explore that don’t directly impact consumers’ health but assist the medical sector in other ways.

    Entrepreneurs and developers in medtech should shift their focus on projects that either address the most common pain points in healthcare or projects that bridge different industries to create innovative healthcare solutions. It requires more creativity, but repurposing technological facets of other industries can help address very real challenges in healthcare.

    For instance, in 2022 alone, more than 40 million Americans had their medical records exposed through data breaches according to an analysis from USA Today. These breaches only build on a recurring critique of the barriers for patients to have access to their medical records across health systems, either for their safekeeping or to understand their own medical history and needs.

    To help solve these issues, smart-document SaaS provider ShelterZoom developed one of its key products for use in healthcare to empower patients to have full access and control of their medical records. The idea is to help patients outmaneuver the crushing bureaucracy many people face when seeing multiple doctors or specialists.

    This clearly illustrates how development that utilizes tech infrastructure from a completely unrelated industry can bolster medtech’s positive impacts through specific, clever reinterpretation. And these kinds of developments can often clear regulatory hoops much faster than medtech that directly impacts medical practices and procedures.

    It’s understandably difficult for medtech companies to get the same amount of attention that they used to. But it’s not impossible to stand out to outside investors, even when the trends aren’t necessarily in an industry’s favor. Likewise, it’s important to look outside of the VC bubble to help drive growth-stage development, and part of that requires creating a product that can stand on its own merits.

    Ariel Shapira

    Source link

  • How to Crowdfund $1 Million For Your Web3 Startup | Entrepreneur

    How to Crowdfund $1 Million For Your Web3 Startup | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    When you think of startup funding, you may envision contests with almost no chance of winning or solid venture capitalists who will not be surprised by your concept. “Those who raise millions for their ideas’ implementation are just lucky ones,” you may think. It sounds surprising, but a strong community can help you achieve success much faster and easier.

    The explanation is simple: The less a person has to contribute or “risk,” the more likely you are to receive a contribution. In this article, I’d like to share some tips from my own experience that may help you pique the interest of your audience in your solution and turn them into its backers. Each worthwhile idea will find supporters. Believe me.

    Related: Who Needs Venture Capitalists When You Can Crowdfund?

    1. Make sure your idea is providing a solution

    In today’s world, no idea can be completely original, but it’s better if you can come up with a unique solution or significantly improve on something that’s already been made. How did we manage it? We saw the benefits and drawbacks of working in the music industry for a long time and wanted to develop something that would truly bring innovation to the space we know.

    We carried out market research prior to building the platform. We researched whether similar initiatives already exist, what they do and the errors they made. Along with estimating the lifetime value of the product, we contrasted our idea with the needs of our target audience. It’s critical to understand whether our project has a solid foundation for the long term.

    In our case, we saw the lack of including the fans on the journey and how the number of independent artists skyrocketed, but the way of getting funding for your projects was still limited to signing a label deal. Artists can invite their fans to be part of the journey while giving back to the community of people who have supported them along the way.

    2. Show the audience a clear strategy

    Be ready to tell the truth. Explain in detail how your platform works, say at least a few words about any possible risks, and show how the money you raise through the power of the community will be used to improve the project and make it more useful for this audience. It’s very important to give people a strong reason to support you.

    Why am I emphasizing it so strongly? People are always reluctant to part with money when there is no obvious use for it. Once it is made clear to participants how their money will be used, what features they will have access to and what the ultimate goal is, a significant part of them will be ready to help you crowdfund.

    Keeping in touch with your audience is not only about keeping them interested but also about showing how much you value their continuous support.

    3. Make it easy to support you

    The more clicks required, the less likely people are to join you. So, make the funding mechanism user-friendly. It determines the stability and success of your monetization. Prepare a brief registration instruction, and ensure that the website navigation is simple to understand. People in 2023 value their time and expect everything they use to be convenient.

    There are numerous crowdfunding platforms available that are tailored specifically for startups or projects in the Web3 niche. Patreon, SeedInvest Technology, GoFundMe and other similar sites are examples. I will not recommend any particular platform, but I will share some criteria that will assist you in selecting the most convenient instrument.

    First, look for a solution that can be directly integrated into your platform in the form of a button or direct link on the main page. Again, convenience is one of the top priorities for successful and predictable funding. Second, choose the one with the most payment methods integrated. Even the most ardent supporters of your idea may abandon you if they have to make multiple transactions to pay you. Third, because there are so many fake website versions out there, don’t forget to educate your users on how to spot a fraudulent link or platform page.

    Related: 9 Steps to Launching a Successful Crowdfunding Campaign

    4. Don’t forget to spread the word

    When choosing the best way to share your initiative, think about which social media networks or media outlets your target audience uses to get ideas. Participate in networking and exhibitions. Making connections with thought leaders and others in the field of the industry you’re looking to enter multiplies your chances of success tenfold.

    We played more than one instrument at once. We worked hard to improve our social media, pitched our idea to top journalists and went to events where we could meet potential investors on a regular basis.

    The specific marketing plan you use will depend on the market you are trying to reach, your target audience and the services you plan to offer, but the following tools will come in handy 99% of the time:

    Develop your media relations: Promotion through news releases in global and specialized media is beneficial at both the project’s infancy and maturity stage. They will create “hype” in the first instance and enhance your expertise in the second. Create articles for publications, comment on current events, participate in interviews, and share announcements in the media and on the project website.

    Utilize advertising services: Set up targeted ads on social networks trusted by your primary audience, use retargeting, and connect with influencers. Brand ambassadors who are thought leaders in your chosen niche will lend credibility to your project.

    Educational content: Blockchain, Web3 and other complex topics require user education. This task can be easily completed with high-quality content: a site blog, FAQ, research, whitepaper, videos (both long and short, like TikToks), podcasts, AMAs and case studies. In this case, the user interaction path with your product might look like this: reading a blog post, visiting a landing page, and finally, requesting a demo of your product or leaving a request.

    Effective social media marketing: Over time, it contributes to the formation of a community of devoted brand fans. Share news, solicit feedback, introduce the team, post behind-the-scenes content, employ various forms of storytelling, use memes or niche-related jokes and so on. A funnel could look like this: clicking on ads, subscribing to a channel, visiting the site and requesting a demo.

    Affiliate marketing: Startup founders frequently do not have enough time to promote their businesses, which is understandable given their other responsibilities. That is why it can be a great option to outsource promotion or launch affiliate programs. The latter allows you to get a predictable result at a predictable price, which is especially important in the early stages when resources are scarce.

    Related: 12 Key Strategies to a Successful Crowdfunding Campaign

    As you can see, an idea lays the groundwork for a project but does not guarantee its success. Even ideas that aren’t very original can sometimes work because the people who came up with them did a good job of assessing their resources, chose the best ways to market them, and perhaps most importantly, didn’t give up.

    My goal was to show you that angel and venture capital investors are not the only sources of multimillion-dollar funding. Millions can be earned through creativity and consistency. You can design your own strategy that will ultimately produce excellent results using the resources I provided from personal experience.

    Mattias Tengblad

    Source link

  • A Step-by-Step Guide to Venture Capital Due Diligence | Entrepreneur

    A Step-by-Step Guide to Venture Capital Due Diligence | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Venture capital firms typically follow a due diligence process when evaluating potential investment targets. That means founders and their businesses are carefully examined, so the startup team should be aware of how to deal with it. Usually, the process at Leta Capital involves seven steps. Here are those steps, along with what entrepreneurs should know about each one:

    1. Initial screening

    Initial screening is carried out to identify if the startup has the potential to even be under scrutiny. Once the connection between the founder and the investment analyst has been made, the first stage of due diligence typically begins right away. In many cases, the process starts informal, and the startup may not even realize the extent to which they’re being evaluated. During the first conversions with the founders, the VC firm makes a preliminary review of the company’s business plan, market opportunity and management team. From that point on, we can superficially assess the profile of the startup and make a decision regarding further observation.

    Related: 4 Tips for Simplifying Due Diligence (and Why It’s Even Needed)

    2. Market research

    After the screening, the investment analyst investigates the market size, competition, trends and growth potential for the startup’s product. We observe the market share that the startup is targeting and determine if there is enough demand for the product being offered. That’s a truly crucial component of the due diligence process. Keep in mind that investors know well there is no “perfect market” to enter and thus look for markets with significant potential, where they can back startups eager to find a sweet spot. However, even high-growth markets come with their own set of risks, such as intense competition, rapid changes in technology and regulatory challenges.

    3. Financial analysis

    VCs also estimate performance by conducting financial analysis. It comprises a review of the company’s balance sheet, income and cash flow statement, assessment of revenue, expenses and projections along with capital structure, including debt-to-equity ratio, evaluation of its customer acquisition model and plans for how it will use the funds raised. In order to progress, founders should be prepared to provide accurate and complete statements, well-reasoned forecasts and proof of transparent accounting policies and practices.

    4. Legal review

    Next comes the process of reviewing a company’s legal and regulatory compliance status, as well as its potential legal risks. The purpose of legal due diligence is to identify and assess any legal or contractual issues that may impact the value of the investment or the ability of the company to operate effectively. The startup should demonstrate a clear understanding of its governance structure, contractual obligations and intellectual property, awareness of all legal requirements related to its business and readiness to resolve any pending or possible litigation/disputes.

    Related: The 7 Due Diligence Basics for Investing in a Startup

    5. Technology assessment and customer validation

    The pivotal point of any due diligence process is the analysis of the company’s products. The purpose of product due diligence is to assess the quality, uniqueness and market appeal of a company’s products, as well as its ability to bring these products to market and scale its operations. The product shouldn’t be the only of its kind or cure-all for the entire market segment but needs to really meet the needs and preferences of its target customers. That’s what we try to confirm with the customer validation process aimed at gathering users’ feedback. Along with that, the VC firm proceeds with the investigation of the startup’s technology to assess its quality, capabilities, limitations and scalability. A technical examination may involve reviewing code, software architecture, hardware systems and technology platforms, as well as conducting user testing and evaluating the company’s ability to integrate with other systems.

    6. Management evaluation and reputation check

    VCs also draw particular attention to the experience, skills and track record of the startup’s management team to ensure that it has the expertise to execute its business plan. Moreover, analysts ask industry peers about their experience of working with the founder. And these days, it is not even about how productive or famous the founder is, but how one can lead the company through periods of growth and expansion, adapting to changes in the market and business environment — and here is where reputation matters.

    7. Due diligence report

    After conducting these evaluations, the VC analyst will write a due diligence report summarizing their findings and making a recommendation to the Investment Committee on whether to invest or not. As a result, the VC firm obtains a thorough understanding of the startup and its potential for success before making an investment decision.

    It is essential for an entrepreneur to understand what is happening inside the VC world. They need to be aware of what the due diligence process looks like and be ready to cooperate. It’s likely that many have heard of the scandals involving top funds, and none of the VCs want to get into a similar situation. That is why a due diligence process is an absolute must, especially at growth stages. Remember that reverse due diligence is also important and makes you look professional: Check the VC’s background and reputation, as you will have a long road toward success together.

    Related: What VCs Look for in a Startup Investment

    Alexander Chachava

    Source link

  • Entrepreneur | 5 Ways to Gain More Runway for Your Startup

    Entrepreneur | 5 Ways to Gain More Runway for Your Startup

    Opinions expressed by Entrepreneur contributors are their own.

    As founders, we know one of the biggest challenges is gaining funding. Entrepreneurs who are newer to the space (and even those who are veterans) tend to focus on raising capital and getting investments as the only or best way to get the funding they need. This is certainly the most attractive route on the surface because it’s an easier way to get larger sums of money more quickly. But as I tell my students at Columbia University in an entrepreneurship class I teach — raising capital from investors as your primary funding source comes with a lot of challenges on its own, and it places all your eggs in one basket.

    More often than not, founders come to me because they’re stuck in a bad situation of constantly raising in order to stay afloat. They have rolling capital raises or they raise often to cover expenses and can’t seem to get the ideal 12 months of runway needed to feel relief — and they’re burnt out in the process. Nothing makes me happier than when I get to work with founders at the beginning of their journey before they start raising, because we have the ability to create a strategy that helps avoid this type of scenario with a strong funding and growth strategy. But for many, we can’t go back in time, and we have to problem-solve how to get out of the rut of spending as quickly as the money is coming in. For this founder, the question becomes more about how they can gain more runway. And this is a question that I’m seeing a new wave of in desperation as new founders are entering the startup space.

    The short answer is there is no one answer. We diversify our personal investment portfolios in the stock market, and we should do the same for creating sustainable funding for our business to get out of the hole. Your revenue model should have a diversified approach to creating more runway, and I’ll cover five methods in this article.

    Related: It’s Winter For Startups! Here Are Five Ways To Extend Your Runway

    1. Raising more funds from investors

    Let’s knock out the most talked about option — raising more capital. Sure, you can raise more capital through equity financing or debt financing, but if you’re already doing this and struggling to create more runway, I’d recommend you keep reading. Continuing to raise more capital as your primary focus puts you in a position of running out of equity, which will make it harder to get investors after a certain point.

    2. Optimize cash flow management

    One of the most overlooked ways to stabilize your burn rate seems to be the most obvious. Cutting costs by reducing unnecessary expenses and optimizing cash flow management is one of the best ways to create more runway. We’re taught as startups that we need to spend to grow. While this is true to a degree, it’s also reckless. If you’re spending without a plan for that spend, then it’s just burning money senselessly without a clear aim. Creating a clear roadmap will help you prioritize expenses for each growth stage to get you to key milestones and inflection points so you can better pace your cash flow. Cutting costs doesn’t always mean cutting completely. Instead, it could mean that it’s a phased-out expense which a clear plan will help you outline.

    3. Increase revenue strategically

    Simply put, go back to the drawing board on pricing, customers and offerings. More often than not, I see missed opportunities to reposition the product with new markets to increase revenues. Or worse, I see early-stage founders simply raising without a plan for revenue mapped out. (Yikes!) Expanding your customer base, improving your pricing strategy and launching a new product or service could be an answer to creating more runway. What I’m not suggesting is spending more money to build something new here. Rather, I’m suggesting you look at how you can scale your existing offering to create new demand for it. I usually will work through a profitability audit with my clients to identify the most appropriate products for this to ensure we’re working smarter, not harder.

    Related: One Secret to Achieving Revenue Growth and Profitability Fast Without VC Funding

    4. Improve operational efficiency

    Again, this seems too easy. Improving your operational efficiency not only will impress your investors and give them confidence in your ability to grow a business, but it will also be one of the most impactful strategies you can employ. Something I hear from founders often is that they’re too early in their growth to think about this. But then again, they find themselves in a position of running low on cash every single month and struggling to keep up. Operational efficiency, simply put, is not optional. A great way to approach this is to look for ways you can automate processes and streamline operations across your six core business areas.

    5. Create strategic partnerships

    One of the most underrated approaches to creating more runway is to creatively approach your operational needs. Partnering with other companies for mutually beneficial collaborations and strategic partnerships can help you reduce costs, expand reach and boost efficiency.

    It cannot be said enough that no single one of these pathways will solve your runway challenges. You’ll want to employ a combination of these approaches as the most effective way to gain more runway and reach that 12-month minimum target. It’s worth noting that it doesn’t come by flying by the seat of your pants. Having a roadmap for how you’ll implement these strategies can make a complete difference. We’re reminded that most startups fail because they don’t have a strategy. While many in the space will tell you that you don’t need a strategy, many more will tell you that you do if you want to survive. Your strategy will help you create a roadmap for how you’ll gain runway while continuing to grow and meet key milestones.

    Related: The 10 Most Reliable Ways to Fund a Startup

    Ciara Ungar

    Source link