Fundraising is one of the most important parts of the business development process. If you want your project (or idea) to see the light of the day, you’ll need to gather the resources – in most cases, money – to kick off the campaign, show it to as many people as possible, and benefit from the idea. So, how can you do it? How can you find investors or start a fundraising campaign to make your inventor’s dreams come true? Below, you will find a guide that will help you – step by step – to properly start and prepare the best campaign of its kind!
How To Raise Money for Your Startup?
Let’s say you already have a brilliant idea, product, or application. Fundraising isn’t a thing that has to be done just once, as you’ll probably have to look for investors over several phases of the development. If this idea has just crossed your mind, consequently follow all the steps described in our guide, and you’ll find out how to create the best project, how to let people know that your notion exists and, finally, how to kick off your fundraising campaign.
There are different methods of developing a business or enterprise. We can divide them into two groups: traditional methods and alternative ones. How an entrepreneur is going to run a fundraising campaign depends on which development method he chooses. Our guide consists of 7 steps which can be applied to the traditional development system straight away. Below the guide, you’ll also find one of the alternative startup development method – the Lean Startup method.
Step No 1. Brilliant Idea
The most crucial part of developing your business is to have an attractive idea to share with the rest of the world. It must be something you’ll be convinced and passionate about. It must be a thing that people will follow or even something that the market is lacking. You – as an entrepreneur – can fill the gap between customers’ desire and satisfaction, which may become your life success.
If you already have fine notion or project that you want to develop and foster, here are some methods and approaches that will help you to test it and squeeze the best out of your concept. If you start from this point and try your best, you’ll increase your chances to attract potential investors and make your project a worthwhile investment!
Step No 2. Prototype
Another important thing to do is creating a prototype and testing it (first: with your friends and family.) If this part is done and your significant others are entirely positive about your new idea, you can spread it further. Ask whoever you want, whether it’s people in the coffee shop, at the University, or even in the shopping mall – wherever you have a chance to do it! You should test your idea’s prototype with as many people as possible; the more you know about the impressions your product, project, or app makes, the better your idea may get. Feedback from these potential customers is crucial, as the more you know what they think, the more you know what areas can be ‘checked’ off and what needs to be improved.
How Many People Should Test the Prototype?
The number can vary from 100 to 500, but the more people will see and use your creation, the better. There are no limits but to follow one simple rule: the more, the merrier!
Prototype – how to create it and what tools to use to make it functional and cheap?
To minimize the cost, see if you can create the best prototype of your product or app using the simplest and cheapest means of spreading out your concept. We – the present day people – have many possibilities to create websites or applications, almost (or, sometimes, even entirely) for free! Yet, what is the most important is getting that brilliant idea out there, where it can be spread all over the world, via publishing platforms and app builders.
Here are some publishing platforms that can help you in starting and escalating the interest in your idea:
- WordPress – is a free and open–source content management system (CMS). It is reportedly the easiest and most popular website management or blogging system in use. It supports more than 60 million websites!
- Drupal – is also a free and open source content management option. It has an active user base and developer community. It powers nearly 2.2% of all websites, including the U.S. White House!
- Joomla – is a reliable, multi-purpose, and open-source CMS that comes with all the features of WordPress and more!
- WIX – completely hosted website builder, free for small personal business sites. It comes with pre-designed templates that can be modified.
You can start your own website or blog anytime. Choose your favorite template here and begin the adventure!
Likewise, here are some app builders which can be useful while making a prototype of your brilliant app:
- AppInstitute – allows its users to create mobile apps for iPhne, iPad, and Android. It’s known for the user-friendly interface and template options that don’t require technical coding or computer programming knowledge. It may be a good thing to start with!
- GoodBarber – A company of Corsican origin, with an interesting name, that can provide apps with beautiful themes and some of the most advanced features you need, such as social networking.
- Shoutem – features plenty of very powerful options, one of which is a location-based directory for places.
- Como DIY – one of the most popular app builders, it provides a broad selection of building blocks
- Appsmoment – helps in creating professional iPhone, Android, Kindle App and Windows application at the affordable price.
Step No 3. Create a Pitch
Now that you have a brilliant prototype, have gained some traction, and your idea is spread out, you can create your pitch and start looking for investors.
What is a pitch?
A pitch is delivering a business plan verbally. It takes the form of an entrepreneur or a group of contractors presenting or describing their ideas to potential investors.
How to make a perfect pitch:
- Less is more – remember to present your business in a manner that is short and straight-to-the-point. Investors must understand your concept. Otherwise, they may reckon that customers won’t understand it either.
- Never hypothesize – your confidence should be insured with facts, not fiction. There is a higher probability that investors will back low-risk businesses. In other words, a project backed by actual research has a better chance of finding investors than a purely hypothetical one. That’s why testing your project, while also creating and improving the prototype, is so important!
- Grasp reality – show investors your big picture, but make sure that you’ll manage to do what you’ve promised. You won’t be taken seriously if you presume that your business revenues will grow sky-high. Creating a few – based on available facts – versions of your financial projections may help you to make a good impression with potential investors.
- Make sure that you’re a responsible manager – being provident is incredibly important, especially in this case. You should show potential backers that you know how to get the most out of every buck.
- Demonstrate that your business is developing – Investors appreciate companies which are continuous developing, often with a step-and-repeat business model which is tailor-made for exponential growth.
- Choose not to be the smartest person in the room – remember the rule that the smartest leaders are those who surround themselves with smarter people. Investors are backing a great business concept alongside an investing in the management team.
Step No 4. Find Investors
You’ve got the perfect pitch, your idea is tested, and you’ve gained traction; now it’s time to start raising funds. Of course, you can do it earlier, even if you didn’t follow steps mentioned above. One thing that you should know, however, is that the investors are more likely to back the ideas that are empirically tested.
How to find investors?
First, let us explain the ideas for startup fundraising that may prove the most helpful for you while searching for investors and collecting money. Below, you’ll find an explanation of the various possibilities for raising funds, as well as internet services, which help millions of people to raise money and start running their business on a larger scale. You can be one of them!
Seed money/seed funding/seed capital – all of these terms refer to the earliest funding that you may be able to draw into your business. Let’s take the term ‘seed’ as a metaphor for the beginning of your business. Seed funding is something that may help you to find money, which is especially crucial when it comes to kicking your project off. Money raised via the means of seed funding may be used as funds for marketing research and product development, but – remember – the more you know your product and the more tests you have done, the higher the chances that an investor will back your idea. These days, when the costs of building startups have gone down, seed investors expect to see a lot more validation and increased traction, even at the very beginning.
Friends and family funding – so-called “love money”, representing funds from your significant others. It’s the simplest and fastest way of getting the means to start your business. You can gain a big amount of money in a very short time, depending on who your friends and family are, but there are many adversities which go hand in hand with this type of funding. At first, it is mostly based on the trust of at least one of the entrepreneurs – your significant others probably won’t need tests, traction, and a brilliant prototype to back your idea. In some cases, they’ll share their money with you even if you didn’t prepare a perfect project and, if it fails, they will probably end with a tax loss. What is also important is the fact that you’ll be meeting them during Christmas and other occasions – so it can influence your private, family life!
Angel funding – Angel investors are individuals who can provide capital for your business. In the past, they were helping artists to start plays in Broadway theaters, but now they are ready to back startup businesses. They don’t do it selflessly, however. Rather, they invest money in exchange for convertible debt or ownership equity. The number of angel investors still increases, and they are organizing themselves into angel groups and networks, so they are not so hard to find. There are some services and platforms which enable entrepreneurs to find an angel investor eager to back their business. You can find some real angels on Angel.co – go there, sign up, and meet your own angel investor!
Venture Capitalist – is a person who provides capital to startups and developing businesses. They are keen proponent of investing in developing businesses, because they can earn a huge return when it succeeds. Venture capitalists are looking for strong management teams, a large potential market, and a unique product or service to invest in. So, as you see, preparation, testing, and creating the best pitch may be crucial when it comes to attracting venture capitalists!
Accredited Investors – these are the biggest fish in the pond – generally, the list consists of absurdly rich individuals, banks, and other large companies with an annual income of at least $200,000 or $300,000. Just hang in there, squeeze the best out of your project, improve it, and one day you may be backed by one of these investors. Crowdfunding – is the practice of collecting money by fundraising from a large number of people, who want to back a significant project and be a part of it. This is not done 100% selflessly – like the charity campaigns are – as people who share their money are getting something in exchange. Sometimes it may be a trading profit of your business or marking them as shareholders, yet another one is to send an early bird copy of your product. When it comes to crowdfunding, there are many, many ways of starting your fundraising campaign and services, which makes you able to kick off the campaign anytime you want! Here are some of them:
Crowdfunding – is the practice of collecting money by fundraising from a large number of people, who want to back a significant project and be a part of it. This is not done 100% selflessly – like the charity campaigns are – as people who share their money are getting something in exchange. Sometimes it may be a trading profit of your business or marking them as shareholders, yet another one is to send an early bird copy of your product. When it comes to crowdfunding, there are many, many ways of starting your fundraising campaign and services, which makes you able to kick off the campaign anytime you want! Here are some of them:
- Kickstarter – a global community which allows over 10 million people from all over the world to back a project. It’s pretty simple if you already have a brilliant idea to share. All you have to do is press the “start a project” button on Kickstarter.com and make people know that your project exists and that it’s worth backing. Starting a campaign is completely free of charge, which is quite an advantage at the beginning!
- Indiegogo – the idea is similar to Kickstarter’s, allowing investors, designers, and artists to solicit funds for an idea, charity, or startup business. Indiegogo charges a 5% fee on contributions. It works similar to Kickstarter when it comes to starting a fundraising campaign: all you have to do is to press the start a campaign button, sign in, and lift off!
- GoFundMe – another crowdfunding platform which allows users to raise money for whatever they want, starting from funding for events such as graduation, for medical expenses, education costs, and even for pets! What you have to know about this service, however, is the fact that it automatically deducts a 5% fee from each donation you receive. Starting a crowdfunding campaign is pretty simple, all you have to do is to register at gofundme.com!
- Go Get Funding – a crowdfunding platform, favored by Forbes and NBC. It allows it’s users to raise money for whatever they want, the only thing they have to do is registering to the service and agreeing to pay the fee, which is automatically deducted when a donation is sent to the account.
- Plumfund – another crowdfunding platform which is incredibly easy to use. You can create your Plumfund, share it with easy-to-use tools, and then receive offline or online payments. This service has the lowest fees and free crowdfunding options since 2006.
There are other options to choose from while looking for money develop a business. Methods such as bootstrapping, startup incubators, and startup loans may be crucial for those who are not 100% convinced of the methods mentioned above. Here are some alternatives:
Bootstrapping – an approach in which an entrepreneur starts a company with a small capital, he or she is bootstrapping while attempting to fund business from personal finances or operating proceeds at the new company. It refers to a self-starting process that is supposed to proceed without external input.
As an old saying says – “pulling up by your bootstrap” – in the context of startups bootstrapping means to do something hard, on your own.
There are few steps which a bootstrap company usually takes:
- Seed money – using personal savings, family and friends money to start with the basics.
- Customer-funded money – in this step a bootstrap business is getting money from customers. It is what keeps the business operating and eventually, funds growth.
- Credits and loans – regarding bootstrapping credits and loans are typically short-term fixes to fund specific growth activities, such as buying equipment or hiring more staff.
In comparison to using venture capital, bootstrapping can be beneficial, as the entrepreneur can maintain control over all decisions. This form of financing, however, may place the unnecessary financial risk on the contractor. What’s more, bootstrapping may not provide enough investment for the company to become successful at a reasonable rate.
Business incubator – is an organization that helps new companies and startups to develop by providing them with services such as management training or office space. There are five incubator types: academic institutions, non-profit development corporations, for-profit development ventures, venture capital firms, and the combination of all of them. In the beginning, startup companies may lack many crucial resources; business incubators provide services – such as market research, marketing assistance, links to strategic partners, advisory boards, and mentors, and much, much more – which help them to overcome the obstacles.
Startup loan – is a government-backed personal loan available to individuals who are going to start or develop a business. Those are unsecured loans, which means an entrepreneur won’t need to worry about putting forward any assets to support the loan application. However, a contractor will be required to repay the full amount and the associated interest in line with the credit agreement if the application is successful.
There are numerous loan possibilities, some even in bitcoins, like this one here.
Step No 5. Pitch!
Perfect pitch – checked
List of investors – checked
Now that you have some investors on your side, you can develop your idea and look for more backers to make your project the best of its kind. Let as many people as possible know about your project. You’ve already raised some money, but the improvement and development of your idea, as well as the marketing campaign, also need funds to be conducted properly. You’ve already created the perfect pitching plan, so share it with as many influential figures as possible, as it heightens the possibility that you’ll be recommended to other big fish! If your idea is trustworthy, your project will be backed by many more people, all eager to invest their money!
Step no 6. Improve, Improve, Improve…
Don’t stagnate! Remember that the market is continuously moving on and that your product should also do so. Foster and make your idea thrive, so it can always fill the gap between your customers’ desires and their resulting satisfaction.
Perpetual development is crucial because investors are more likely to keep investing in projects which are getting better and better!
Step no 7. Never give up!
It’s the alternative method mentioned at the beginning of the guide. This approach will allow you to shorten the product development time. The primary assumption here is that if startup companies invest their time into creating goods or services to meet the early customers’ needs, they reduce the future market risk. If the first version of the product gained people’s attention, it is more likely that developing it may increase the interest even further.
More on the Lean Startup method: here.