One of the biggest challenges facing people starting out on the path of establishing a new business is getting the funds to do it.
The digital age has made it much easier for so many more people to make their business dream a reality, but growing a business often takes more than just a website and determination.
To really grow a business from an idea to a revenue-making enterprise often takes money. It can be your own money if you’re lucky enough, or money from family and friends, but not everyone has access to such sources of capital.
The next stop for most aspiring business owners is a visit to the local bank for a chat with a business banking advisor.
Banks have come a long way in the past few years when it comes to understanding the needs of small business people, but it can still be a slog convincing them your idea is right for them, especially if your idea is so disruptive or out of the ordinary that the bank finds it hard to get where you’re coming from.
There is also good old-fashioned credit card debt, which comes with its own range of risks and pitfalls.
Capital raising concepts such as crowdfunding, angel investing and seed funding have become a lot more popular and attainable in the past few years, especially in the realm of tech startups.
Perhaps one of the biggest seed funding stories over the past decade has been Uber. It started off in August 2009 with a US$200,000 seed funding round. That money came from its two founders, Garrett Camp and Travis Kalanick. A year or so later, it raised US$1.25 million in angel investor funding from 30 investors. Today, it is estimated to be worth more than US$50 billion.
Seed funding is about bringing great business ideas to the attention of potential investors so that those investors can get in early on successful ventures and exit rich.
Seed investors get a stake in a startup and can see that stake grow exponentially and even balloon to outrageous numbers. Take the case of supreme venture capitalist and seed fund investor Chris Sacca, who invested early in the likes of Twitter, Uber, and Stripe, and now sits on a portfolio worth US$1.2 billion.
The rewards of seed funding can be huge for both sides of the equation.
The crazy amount of tech money that characterises the Silicon Valley investment scene is not replicated in Australia but that doesn’t mean there’s no money out there for those with the right idea.
Here are 10 tips to help you start thinking big about seed funding for your business idea.
1. Does your business solve a problem?
Investors don’t want cute gadgets or wacky inventions – unless those things actually solve a real problem for a significant number of consumers. The same goes for services. At the very heart of what investors are looking for is whether your business idea meets a current demand among consumers, or will create a demand because it solves a problem consumers never even knew they had.
2. Do you have customers?
“How can I have customers if I haven’t even started my business yet?” Wrong answer. The best way to demonstrate you’re solving a problem with your idea is to go out and find people who have that problem and believe your prototype will fix it for them. This is part of the hard yards. Go out and find the evidence. Not your family and friends, but actual people who are independent and neutral but think what you want to do is the greatest thing since Uber or sliced bread. This is the pool of customers investors want as proof you have an idea that can go to market.
3. Learn to take feedback constructively
Get ready to tweak, twist and pivot. The idea you have today might be only the germ of the business model that makes you a billionaire. Grow a thick skin and big ears; listen to what people like and don’t like about what you are doing. Listen to your pool of potential customers and listen to the feedback your potential investors will give you. The irony of the situation may be that other people see the true potential of your idea better than you do.
4. Your team needs to have the right set of skills
Don’t have a team? Get one. Investors are far more likely to put money in if they see your business idea is being lovingly nurtured and grown by a team of capable people with complementary skills. The classic startup team starts with a duo: usually a practical, tech-minded person and a finance-savvy salesperson.
5. Think scalability – can you take this idea global?
There is no excuse anymore for Australian businesses not to look globally. The capacity to go global provided by the internet and digital means your idea should be looking for international markets. The fact is Australia is a rich nation but it still has a relatively small population. You can get started here, but investors will want to see a business model that is capable of being replicated and scaled in overseas markets.
6. Are you after a loan or actual investment?
There is a lot more involved in securing capital from investors than there is in taking out a loan from the bank. Think about what it is you want out of the investment. Seed and angel funding investors will expect a bigger say in how you run and shape your business and they might take a bigger cut than a bank. Think about the merits of bootstrapping until you are really ready to take your business to the venture capital arena.
7. Compile your data and get your story straight
Investors like numbers and data. More impressive than the slickest video or PowerPoint presentation is a solid set of numbers and data that shows how your business model works and who your potential customers are. This is what you can build your compelling story on. Otherwise you’re dealing in fairytales.
8. Build your networks
Hit the meet and greet networking events that are part of the startup scenes in your capital city. Follow and comment on the social media posts of people in your industry and especially investors. Online and social media means you now have access to some of the most powerful people in business right at your fingertips. Don’t abuse that privilege, but think about ways you can make it work for you.
9. Be willing to back yourself
If you’re not going to back yourself, you can be sure few others will. This extends to putting your own skin in the game. Investors appreciate the show of faith that comes from a business owner who is willing to put up some collateral to make things happen. This might mean doing something scary like remortgaging your home, but if you truly believe in your idea, this might be what you have to do. If you’re not willing to take that step, you might have to think hard about your idea and go back to the drawing board.
10. Know what you will do with the money
You need to have a solid, concrete reason you’re going to people asking for investment. Investors don’t want to see their money squandered. What they want is a plan to outlines what money is being put to and for what purpose. As I’ve already mentioned, investors will ask you probing questions and will give you penetrating feedback, much of it around how money is to be spent. You need to have the answers and be accountable because once you receive seed funding, you have to justify your outlays and outcomes.
This article was first published on SmartCompany.