These are exciting times for entrepreneurs. Though it is no walk in the park, more and more people are turning to entrepreneurship and working on exciting ideas that could be large and successful enterprises. Today, businesses have access to capital in the form of angel, venture and growth capital, provided their business models are proven and reasonable, they have a team to execute and are building sustainable organizations. And, of course, there are friends, family and fools.
As an angel investor and consultant, I have been investing and advising startups for a while. I get to meet enthusiastic entrepreneurs and teams looking to raise capital. Several of these are good businesses, but are not necessarily fundable by venture funds or angel groups. Investors and financiers define ‘being fundable’ differently; individual angel investors may fund a startup that is not necessarily attractive to venture funds. What is fundable by venture capital or private equity may not be fundable by angels or individuals, and what is not fundable through equity may be fundable through debt. As a first step, I always tell entrepreneurs and companies that they need to analyze and understand why their startups or businesses may be fundable. This saves time, avoids disappointment, and allows you to focus on building your business.
- Make It Opportunity Driven – Not Just An Incremental Exercise
Are you solving a problem or serving a real need? How real is the problem or need? How big is the market size? Are your potential customers telling you that you are solving a problem, and are they willing to pay for it?
What stage are you in? Are you still an idea or have you developed a Proof of Concept (PoC) and have some market validation? It is always a chicken or egg situation – how do I build or develop a PoC if I do not have resources and without a PoC or developed product, how do I attract capital?
Do you serve a niche market or will you ultimately sell to a broader market?What rate is your target market growing at?
Will the business grow to a point where it can provide an “exit” to its investors or provide an attractive Return on Investment (ROI)?
- Are you gaining traction? Are customers signing up and how quickly? What kind of impact will your product or service have on the target customer population?
Do you have a team or are you building one? Does the team possess a mixture of domain knowledge and experience, business experience and technical expertise? Do you have advisors or mentors who are guiding you and providing critical real world insight?
At what stage will the business generate enough cash flow and will be sustainable? How much capital or funds do you need to get to profitability and sustainable cash flows?
What are the deal or investment terms? Is there capital security? What is the investment duration?
Having outside investors – angels, venture funds, financial institutions or banks will require strong discipline and the right attitude. Raising capital is not an end in itself, but the start of a journey that is fun, challenging at times, frustrating, and gratifying.
Starting and running a business is tough, challenging, and a lonely journey and getting funded is a part of that journey. Making money is not easy, though it is portrayed that way! Prepare methodically, execute well, surround yourself with talented people, and have fun!