Raising money for startups can be a challenge. There are a few things that business owners need to avoid when seeking external investment.
An insufficient fund is a major reason for business failure. Startups and small businesses do not pick up because of the lack of funding. It is advisable to seek out money for a startup, but your success depends on how you do it. In most cases, the investors do not share your interest. If you do not do it right, your idea may be doomed to the bin.
Here are seven things you should avoid when seeking funding for your startup.
1. Seeking funds without a business plan
Most founders think that having a business idea is sufficient to make another person want to invest in them. You need to have a business plan before heading out to court for funding. The plans should show what you plan to do, how it will earn revenue and your expansion strategy. It will also point out the opportunities in the market.
You plan should also have a strategy on how the investor will gain by putting their money into your business. If the investor is not a bank, then you will do yourself some good by having an exit strategy.
2. Venture Capital
Venture capital has a significant impact on the business sector as they have sponsored some of the most prominent companies in the world. However, they are not for everyone. If your business is not positioned for rapid growth, keep off this source of funding because you will not get it. Even if they do, they will impose control measures that will suffocate your business to extinction.
3. Doing it alone
A paraphrase of an old saying goes something like, “if you want to go fast, go alone and if you want to go far, go with a friend.” It is very true in business funding. You might be able to organize and make decisions in your current small business. However, get another person to back you up when you have to solicit for funding.
It is important because investors understand that the lifespan of a lone-warrior is short however impressive the current achievements may be. A partner would help you carry the weight of decision-making and the risk when your venture grows into a midsize business.
4. Hiring wrong people
Having a partner is different from having an employee. Most startups that fail due to financial constraints do so because business owner hired people unnecessary personnel. A problem with recruiting when you are still courting for funds is that the employee becomes a fixed liability. It may be okay to hire an expert to handle your current customers’ needs, but you do not need an HR if you are not recruiting.
5. Focusing more on looking for funding
It is easy to find yourself so immersed in hunting for money for a business that you forget to build the business. Your clients are just as an essential source of business capital as investors. Poor marketing and not lack of funds is the leading cause of business troubles today. Create time to hunt for customers even as you look for people to put their money into your business.
6. Not doing proper background checks on the investors
Not anyone who is willing to invest in your business means well. Some are opportunists who will dupe SMB owners into a deal then rob them of their hard-earned revenue, killing your dream in the process. You can avoid this pitfall by doing a background check on the investor before approaching them. Avoid preferred shareholders and convertible debts if you wish to stay free of unnecessary business issues.
7. Envisioning high returns
While it is good to have a positive outlook on the fruits of your labor, it is important to remain realistic. Businesses rarely go as planned. The best way to get around this is to speculate the lowest returns with the highest spending. That way, you will be able to make realistic promises to your investors.
It is a good venture to have a dream and work on it. You need to choose your investors wisely, as they are all out to build their bottom line. Providing money for startups is a simple means to that end.