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Business, 7 MIN READ

Startup Funding
Action Plan

July 29, 2019
SERGEY STUKAN
You have already developed a minimum viable product or at least a prototype for your million-dollar idea. Now all you need is money to get it to the market and start earning. How do you secure startup funding? Where and how to find investors? What makes other startups lose the pitch race? Today we'll answer these questions and more.

Startup Funding Stages

Traditionally, startup fundraising goes through several funding rounds:

  1. Seed capital. The sum necessary to start the company and implement the idea in an MVP or prototype.
  2. Series A. Early-stage funding that secures product optimization based on first adopters' and investors' feedback.
  3. Series B. First positive results enable the next fundraising round to secure the money necessary for extending the potential of the project.
  4. Series C and beyond. Once your project gains traction and shows significant results, you can secure funds necessary for further scaling to increase the revenue.
mobile app development team
However, this model for startup funding rounds has changed in recent years, as investors' requirements and expectations increase. According to Natalie Dillon of Susa Ventures, the average age of startups raising seed capital has already exceeded three years.
Moreover, the median seed round is now $2.2 million, whereas it was only $700,000 ten years ago.
Even small ventures gain significant funding during seed round. Recent examples include:

These numbers illustrate the shift from small business investment priorities to significant investments that feed into companies that have already gained a market share and want to expand it. As a result, current seed rounds resemble Series A deals. You need to keep this in mind for successful startup business funding.

How to Get Funding for Your Startup?

According to a survey by Kabbage, around 30% of small businesses start with as little as $5,000. Almost two thirds (58%) rely on a $25,000 startup capital. According to Lendio, the most common sources of startup capital include the CEO's personal savings (77%), bank loans (34%), loans from friends and family (16%), online lenders (4%), and other funding channels. The same survey suggests that only 3% of small business owners raise money from angel investors and venture capital, and only 2% rely on crowdfunding sites. However, these types of startup funding offer the most promise, so let's take a closer look at each of them.
mobile app development team
Crowdfunding
This strategy relies on getting small donations from numerous people to fund your startup and gain first adopters for your products. You can attract crowdfunding investors to your offer using any of the online and offline marketing strategies. This fundraising strategy is perfect for startups in need of seed capital necessary to start development or manufacturing.

If you want to raise money for a charity cause or have nothing to offer in return to your investors, GoFundMe is the best crowdfunding startup funding website for you. Kickstarter and Indiegogo are reward-based, meaning you must provide a product or a service for every investor depending on the sum of their donation. You should read the terms of use carefully before setting up your crowdfunding campaign on any platform to avoid unpleasant surprises, such as mandatory commissions or fees.

Business Incubators
Incubators help with starting a business. They support startups as they grow and find their feet on the market by providing management training, office space, seed capital, and more. Unlike other business programs, incubators do not admit all applicants and are aimed at newly established and early-stage companies. This translates into high success rates and world-changing solutions, such as Airbnb, Dropbox, Reddit, and others.

Business incubators vary depending on their operational model and goals. Academic institutions and non-profit organizations usually do not require returns from startups. For-profit property development ventures and venture capital companies want to see their investments multiplied. You can find a business incubator that suits your needs in the organization directory of International Business Innovation Association. Some well-known incubators include Ycombinator, The ICEHOUSE, Techstars, and more.

Angel Investors
What is an angel investor? Angel investors are individual investors willing to take high-risk approaches with fewer return guarantees. However, their funding budgets are usually limited and sometimes cannot cover startup needs in full. This fundraising strategy is best suited for getting seed capital and early-stage funding (Series A).

To find your angel investor, start with online platforms, such as Angel Investment Network, Gust, or AngelList. You can also meet them at industry trade shows and conferences as a part of your networking effort. Web Summit, Rise Conference, Startup Grind Global Conference, TechCrunch Startup Battlefield, and others are all excellent places to start.

Venture Capital
Companies and funds can invest in your startup on behalf of their owners or members through a venture capitalist managing the daily operations. VCs steadily become more demanding, and they do not risk money unless they get profit guarantees. As a result, this fundraising strategy is more viable for established companies that have already gained a foothold in the market.

To find your venture capitalist, you can send out your pitch decks to VC funds and companies. We'll share insights on the best time to do this later in this post, so stay tuned. However, you will get the highest chance of securing the funds if you are introduced to an interested VC by another investor or if you are contacted directly after your startup gets noticed.

ICO
Initial coin offering is not just for cryptocurrency launches anymore. ICO can become a startup funding strategy if you sell tokens or coins to raise seed capital. This approach allows you to forego venture capitalists, bank loans, and stock exchanges. You can even avoid some regulations, although more countries are adopting laws to regulate the volatile cryptocurrency market. You will also need to invest in token development first, and for that, you require technical help from an experienced developer or a full team.

These are the five most common startup financing approaches for raising seed capital and going through further investment rounds. None of them are without downsides, and you should analyze both benefits and pitfall before committing to one strategy. Whichever option you settle on, you will need to present your idea to entice investors, and that's what we'll cover next.
    mobile app ideas

    3 Fundraising Must-Have Tools

    Successful fundraising requires lots of research and preparation. While there are dozens of tools you will need, these are must-haves because without them no self-respecting investor will give you the time of day.
      1
      Product Prototype
      Your MVP does not have to be a solution ready for release. However, it should provide investors with a clear view of the product, its features, and benefits. If you don't have the funds necessary to create an app, start with design mockups and a clickable prototype. These will tell a better story than your most convincing arguments. Even a one-page website showcasing future design and features will go a long way in gaining attention, though a working application is more likely to attract serious investors.
      2
      Pitch Deck
      This is a presentation you will send out to venture capitalists and angel investors or use during meetings to promote your idea and raise money. For best results, your pitch deck should be concise and to the point. Considering most investors receive hundreds of decks, yours must grab attention and make a compelling point using numbers, statistics, business plan calculations, charts, forecasts, and more. Don't forget to add copyright labels to your slides to protect your idea from unauthorized use.
      3
      Online Image
      Your Facebook and LinkedIn profiles should be investor-ready. Most VC and angel investor will research you before getting in touch, and professional social media profiles are the first places they look. Use your real name, make sure your profile photo is professional and recent, remove any unflattering posts and pictures. People willing to give you money want to see you treat your endeavor seriously. As a face of your startup, strive to present a compelling image that will convince investors you are worthy of their trust.

      Startup Funding Mistakes to Avoid

      Dozens of factors can affect the investors' decision to withhold funding. We will point out a few glaring and not so obvious mistakes that will doom your pitch and ruin your chances of getting the funds.
      Do not:
        • Pitch unoriginal ideas. We've established that investors are drowning in business funding offers, so they will notice you've copied someone else's idea. Do your homework, research the market and competition, and always be aware of your unique selling proposition. Otherwise, you will never hear back from serious investors.
        • Become rigid before your time. Startups should stay flexible and agile to evolve, grow, and become better. This ability to embrace change is your critical advantage over industry incumbents and established businesses. Stay on the lookout for better implementations, new features, and listen carefully to customer and investor feedback.
        • Do everything alone. Most successful companies have at least two founders, even if some of them are less well-known. Inc statistics confirm that startups with two founders are 30% more likely to secure funding because investors like a more balanced power structure that prevents common mistakes, such as premature scaling.
        • Skip the IT vendor research. If you rely on software development outsourcing, take your time to learn more about the team you want to hire. Use Upwork or Clutch.co to browse real reviews and recommendations by past clients and study the company portfolio. This will prevent you from being stuck with unqualified developers.
        • Try to take over the world. At least, not all at once. Most startups do not have the funds or the personnel necessary to cover a broad niche, and investors realize this. Instead of trying to do everything to achieve nothing, focus on narrowing down your niche to a manageable scale while still keeping it viable. You can expand your target audience later by adding new features or developing new products.

        Pro Business Startup Funding Tips and Tricks

        According to a recent research report by TechCrunch, there are only two fundraising windows throughout the year. The one in March lets investors browse and decide on investment opportunities before the summer break. The second window in October/November provides a chance to secure deals before the Christmas holidays.

        However, these windows do not mean you should start sending pitch decks as late as October. Instead, start early and give VCs the time to discover your project, consider the competition, and make a decision.
          While August and January are among the slowest months for fundraising, they are perfect starting points for your pitch campaigns.
          Never running out of money is the startup founder's primary concern. To stay on top of this, consider your runway and give yourself at least six months to move to the next round of startup funding process. If you got enough money for 12 months during the last fundraising campaign, you would have to start over in just six months. Choose your fundraising window accordingly.

          Most startups rely on founder's personal savings to get off the ground and move onto raising seed capital through angel investors, incubators, or crowdfunding after they have a working MVP or prototype. Now you know where and how to get investors for your startup and how to dazzle them with your pitch deck, prototype, and online image.

          Just remember to avoid common startup funding mistakes, and your chances of successful seed round will soar. While you prepare for the next fundraising window and market your ideas, let the FreshCode team take care of the technical side of things for you!
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