“When should the business seek funding?
“Should I seek funding when I have an idea or when the business is set up and running?”
“Should I ask for money now?”
Every start-up company has asked a variant of this question at one time or another. It’s a common question, one that all startups need to consider when attempting to get a business off the ground.
Some turn to venture capital (VC) firms to get their funds. Others stick to newer crowdfunding platforms such as Kickstarter, Indiegogo or Ata Plas, one of Malaysia’s most popular crowdfunding sites. Most turn to one platform or the other to obtain the funds they need, and both routes have their strengths and negatives.
For all new business owners, remember this though. When seeking investors, you’re now diluting your company, and you may not be getting the best investor. The best investor might add more value and might help the company grow. It doesn’t always work that way, so be very careful when seeking outside valuation.
That said, there are times when you do need the funds. It is unavoidable if the company has any hope of growing from its current state. So whichever route the company chooses, the question still remains.
When should you start seeking for funding?
- When your company is fully staffed and ready
Is your startup truly a ‘startup’ or a business with a full team of staff behind you?
Are you someone with just an idea seeking validation and some money to build the prototype of whatever it is you are seeking to sell or is there an actual team behind the product?
Without an actual fully formed company behind the product, firms aren’t likely to come along to throw money for a hint of an idea, scribbled on a random piece of paper, unless that person with the idea is a proven factor.
Unlike most successful entrepreneurs, most of us aren’t known quantities. Have a team ready with the idea, then seek valuation.
- When your company’s records are good
This seems like a no brainer, but when your financial records are in great shape, VC firms are more likely to invest in your idea if they are able to see good solid fundamentals in the company instead of a startup in shambolic shape.
What most VCs want are sureties, that their money spent on funding an investment will more than likely give them returns. Also, even if you are seeking for crowdfunds, current public sentiment states that unless you have an absolutely fantastic story to tell, your product will more than likely not be seen.
- When you have a solid business plan (not just for now, but for the future)
You have a product, a great team behind it and everyone is passionate about its eventual success. What’s next? What are the company’s long term goals?
Investors aren’t just buying into an idea. They’re buying into a business. This means that at the end of the day, the company must be able to deliver a return on their investment.
Have a solid, highly detailed business plan that shows how you are navigating the startup towards greater opportunities, your branding and what your growth strategies are. No one wants to see a haphazard plan, if at all.
- When the company’s growth depends on it
Now, you and your co-founders have bootstrapped yourselves to the company and have done all you can with the limited funds the company has. You’ve worked hard all day and night with your dedicated team alongside you. You can’t grow the company any further without a significant amount of funds coming in.
This is exactly the time when you should be seeking for funding.