So, you’ve started your business (or you’re an entrepreneur in waiting). You’ve got an idea you love, maybe a prototype, maybe you’re already trading, but you have no idea how much you really need to raise, where to find the funds and how to prepare for ‘the ask.’ Here are ten tips to get you started.
1. Do it yourself
The sooner you involve investors in the life of your venture, the bigger their control and ownership share per rand. If you truly believe in the venture, check your own pockets first before seeking outside funding.
One of the best moves you can make as a start-up founder is to provide the seed funding yourself. If you have savings, credit cards, a bond-worthy house, a classic comic book collection, or other valuable assets, you should consider it.
Related: 5 Ways to Bootstrap Your Business
Doing so will prove to yourself that you truly believe in your venture, give you credibility in the eyes of future investors and leave you in full control of the venture.
2. Friends, family and you
For seed level funding, I feel it is fine to approach close friends and family, as long as you are willing to invest cash yourself. If you are not willing to put up your own money, it means you are not ready. So get back to refining the idea and don’t ask anyone for funding until you are willing to put up your own house as collateral.
3. Don’t expect an investor to pay for yesterday
I have never seen an investor willing to reimburse founders for the number of hours they spent at the workbench perfecting their idea. To investors, past efforts don’t count, only results.
It doesn’t matter how much blood, sweat, tears, time and money you’ve put into your idea, your start-up’s worth is established by the investor’s belief in you and your idea. So make sure you have something of value to offer before you ask for funding.
4. You need a salary
Investors want to see that you are deeply committed to your own idea but that doesn’t mean you should work for free. The best way to impress your investors is to fully dedicate yourself to adding value to the start-up – that is your job.
You should not be distracted trying to figure out how to pay your bond. The investor’s job is to provide funding. Let them do that.
5. Do your maths homework
My definition of seed funding is enough financial support to keep you going for three to six months, so you are ready for the next step. The ‘next step’ could be anything from having a refined prototype to attract future investors, to putting a viable product on the market and starting the revenue stream.
Do the maths before you ask anyone for money. You need to be as accurate and complete in your estimates as possible.
6. Don’t over seed
Some folks feel there is no such thing as “too much money,” but I believe many start-ups become overwhelmed if they attract a landslide of cash. Take only what you really need. That will keep you focused and minimise your obligation to others.
7. Customers are always right
A source of funds, even better than your own wallet, is from customers buying your product or service. You may not have your own final product line yet, but you may be able to be a reseller of related products in your target market. This will allow you to generate revenue, get your name out in the market place and gain a much better knowledge of your customer.
Don’t sell an early version of your own product unless you are absolutely sure you can deliver quality. Reputations, especially bad ones, rise quickly and stick like glue.
8. Investor or lender?
At the seed level, you are better off taking a loan than asking for an investment. Let’s face it, if you get money from family or friends, they are probably just trying to help you out and not really interested in being investors.
If it is a small enough amount of money, you’ll be able to pay them back over time even if the venture fails. If the venture succeeds, you can pay them back quickly and you have not given up any stake in the company. Everybody wins.
9. All rands are equal
It doesn’t matter if the funding you put in the company is your own last rand or funds from the richest person on Earth. You need to treat every cent with the same care. This is your fiduciary obligation, not just a technique to show potential investors you are frugal.
10. Try crowdfunding now
If your idea is good, you are skilled at making clever videos and you have the energy and connections to wage a strong social media campaign, you can raise serious money through crowdfunding. Don’t think your idea is too small to get the proper attention.