A startup investor is someone hungry for staking their money in a new business with a growth prospective.
They are constantly on the lookout for strong signals that can persuade them to invest their money.
Keep reading to understand the main areas to focus on when funding a startup and valuable tips.
What is a Startup?
As the name suggests, a startup is a business in the initial stages of formation. The founders usually finance the business from many sources.
It can be personal savings, loans from financial institutions, seed capital, financing from angel investors, incubators, or accelerators.
There are many types of startups; however, the most common are small businesses, buyable, scalable, offshoot, and social startups.
The idea behind startups is to develop products or services, bring them to the market and find acceptance among customers.
Why Do Entrepreneurs Fund Startups?
In answering this question, we must understand why startups need funding. A new business requires funds or capital to take off, increase visibility and attract the attention of a wide market.
For this, they need to raise capital to support the business venture, and that's where funding comes in to provide the resource.
Mostly, funding comes in the form of cash but can also be the effort or time taken to build the business at the foundation stages.
With this in mind, why should you fund a startup as an entrepreneur?
First things first, entrepreneurs enter into business to make money. When you put your hard-earned money into a startup, you want to be sure it will come back with interest.
Other than supporting the startup venture, you'll want your money to multiply because you're an entrepreneur.
In addition, as a funder, you'll develop an interest in the upcoming startup and see it grow into a big venture.
In America, some of the big names have a history of being financed through successive stages of funding. It can be at the beginning, customer or market, and credit stage that includes taking out external loans.
Some of the most successful companies that took off to grow into big names as a result of funding include Apple, Oracle, eBay, and Microsoft.
When building a business from scratch, it's always important to be prepared for any eventuality. Funding startups is likely to continue into the future as innovation takes center stage.
Things To Keep In Mind Before Funding A Startup
Now that you understand what a startup is and why people or institutions invest their money in startups, next, we look at things to keep in mind before funding a startup.
1. Examine The Growth Prospects Of The Startup
Knowing if the startup has a growth projection in the short term and long term is one of the most important things to consider before you advance money for its take-off.
According to research, most startups die at the infancy stage due to a lack of planning funds running out, lack of proper research, ineffective marketing, poor partnerships, and lack of interaction with industry experts.
Likewise, a big mistake most new companies make is to scale up too quickly by bringing onboard new people, spending a lot of money, and trying to get new customers without nailing down their product, marketing, and business model.
A startup with growth projections has clear goals and ways to meet its objectives.
2. Look at the Executive Summary
The executive summary contains vital information about why the startup wants to exist. Remember, there's no ton of information about the business because it's new.
Therefore the summary should be convincing and contain valuable information as well as the value proposition of investing in the business.
3. Interrogate the Business Opportunity
The startup should explain how it's different from other companies and the nitty-gritty details about its products and services.
The proposal should also include the target market, audience, competition, and why they deserve funding.
They should give projections about the market segments they want to target and share of the market.
4. Scrutinize the Financial Statements
Even though it's a new business, the proposal should provide details about their financial stability and what they'll contribute to the project.
Before you step in, the founders will have to raise the initial capital. A small business may get an online loan depending on the nature of the venture.
A payday loan is also an option if the founder is employed in an organization and the startup is part of their side hassle. Whatever the source, these details should be available in the business plan.
The financials should also show revenue and expense structure to up their odds of getting funded.
5. Examine Current and Future Credit Requirements
Of course, as the business expands, it will require funding which can be from banks, private lenders, credit unions, or CreditNinja loans in Minnesota , for example.
The startup must disclose their estimated funding requirements and be candid about their expectations from lending institutions.
They should also disclose how they intend to use their future cash requirements and whether the business will meet loan repayments at that time.
Usually, as a business grows, metrics like credit score and reports will be used to determine its financial health. Thus the startup should detail how it intends to maintain sound financial stability.
6. Review The Management Team
The startup should give you a short description of the management team.
As an investor, you just don't want to know the ins and outs of the finances. You also want to know about the people within the business, particularly the directors, management team, and staff.
The team should have a distinguished background to whom you invest your money. They should spill the beans about the founders' educational background, work experience, and financial stability.
Do the founders have a history of bankruptcy or debt repayment? Ask that too.
You need to be confident, which is vital to your venture's success. When funding a startup, you stand a better chance of being successful if you exude confidence in your dealings with the venture. By scrutinizing all the details, you should be certain that the startup meets the criteria of being funded and taking off on a good start. Most importantly, keep your chin up, believe in the business, and know that it takes time for a business to scale up.