Starting a new business requires many things to be organized, and it’s hard to track how and when you need to do it. Having a checklist during this time would be fully useful. This is why we went ahead and crafted a super granular checklist to make your business 10x easier. In this article, we will discuss six major checklists to be considered while launching startups:
Fundraising is the core part of a startup’s success and a challenging task too for entrepreneurs. As the startup grows, its funding requirements grow as well. So startups seek the help of external funding sources like investors (VC, Angel), bank loans, crowdfunding. Before approaching them for funds, an entrepreneur must ask themself- Is he ready for fundraising? Now the question arises how he would get to know he is done with? Well, he should make sure to answer the following questions:-
An idea refers to introducing a new product/service in a market. Every entrepreneur has brilliant ideas, but the biggest challenge is to figure out which ideas can be pursued and turned into reality. Startup ideas are crucial for their success. Let’s check out the ways to know your business idea is worth persuading:
Make sure to have a viable startup idea in hand to achieve high profit and growth in the future. Hopefully, these ways can help to blossom into a successful venture.
• As significant as having the problem to solve is having customers. The best idea should make customers pay for your product/service. Make sure you can attract paying customers for your new business. They are identified by conducting market research and interviews.
• If no one else thought of your idea, then your thoughts are safe in your hands. You can also revamp the old or existing ideas with a significant enhancement in the model- All you need is to adopt unique business strategies to get the customer’s attention and the public.
• Your idea should have a significant role in competition in the market. Without competition, there is no demand for the idea that you want to offer. Many entrepreneurs have a belief that having no players in the industry is safe for the business. So it is essential to keep track of the current and potential competitors.
• Seek feedback from the people you don’t know personally to understand the insights of your business ideas. Or else find business advisors, established entrepreneurs, mentors for their suggestions regarding the same. For external validation, you can ask the target audience by creating a survey online or on paper. Ask for feedback from as many people as possible because they can help you learn opportunities and grow your career.
• Some entrepreneurs may stick to each customer’s feedback, but it may not always be correct. He should consider his likes, dislikes, interest, passion and follow his heart because a more substantial commitment with ourselves will last longer.
• Talk to your potential customers about what they think of your idea. If they can satisfy their needs and preferences, go ahead with your ideas. Remember to share your prototype or images of your product with your customers. If you are providing service, describe the results of your service.
As far as any business is concerned, it starts and ends with employees. No startup/business can rest on the shoulders of a single employee. At some point, it requires the right set of team members with combined efforts to attain their goals. The stepping stone to a successful startup will be the strong team to carry your startup to the top. The following are the team members to be considered while building a solid startup team.
CEO: Chief Executive Officer is the highest-ranking executive in the startup. The startup CEO is the one who comes with the most significant responsibility for the entire work. He makes substantial decisions, builds team structure, communicates with the board of Directors, gives direction and guidance, delegates tasks, raises finance to the company, and many more.
COO: Chief Operational Officer(COO) is a person who is reporting only to the CEO. He undertakes to manage the day-to-day operations of a running business. A startup COO executes strategies, consults with the CEO for fundraising, corporate vision, culture, design, and implementation.
CTO: Chief Technology Officer (CTO) is essential in a tech-oriented industry. CTO leads the startup’s engineering team to possess good technical skills to develop and manage innovative projects and closely work with developers to ensure that work gets organized. Further, he is also responsible for technical business strategy and startups research and development.
CMO: Developing a business idea does not guarantee success. It requires product value to convince and attract customers to buy it. Here comes in CMO. Chief Marketing Officer (CMO) is more or less like an architect for a startup who plans and executes marketing activities. He must perform market research, communicate and connect with business and customers, lead product and brand management. He possesses creative ideas to publish products/services to a broader audience.
CFO: Chief Financial Officer is one of the greatest assets startups can have because someone can handle all financial aspects of a business. It performs record-keeping, tracking cash flow, fund management, business reporting, financial planning, and analysis.
Product Manager: A product manager is the one who discovers and delivers differentiated products for its customers through conducting proper market research. He should stay close to his customers and focus on product growth. The critical component of the PM role is to prove that the product/service solves the recognized customer problem.
Business Development Manager: In an early-stage business, building a user base is rigid. A BDM explores new business ways, develops strategies, finds new customers, maintains relationships with existing customers to make startups grow and earn good revenue. A BDM should possess skills in the fields of marketing, sales, communication, industry experience. Here steps out the need for a BDM.
Customer Service Representative: As we all know, the customer is the king of the market. Without serving them better, no business can proceed to go further. The role of CSR is to communicate new products information to potential customers, handle and solve complaints, ask questions regarding their products over the phone or send emails or concerns.
Having a killer business idea and plan is not enough for startups. It requires the best team members to make good things happen. Once you create your business idea, make sure to hire the right team for your startup! The roles and responsibilities of these team members may vary from business to business.
The most significant hardship for an entrepreneur is often securing appropriate finance. They may depend on various sources for funding. Venture capital (VC)is one of the many solutions referred by startups to finance new or growing businesses in exchange for equity. It is a good option for innovative startups looking for high growth potentials. The one who invests venture capital in business is called Ventre Capitalist. Using venture capital, startups can access a more considerable amount of money to have customers and resources.
Further, it can also provide substantial expertise, connections, consultation to your early-stage startups. However, the road to VC funding isn’t as easy as it seems for every startup because they lack trade history. So, before seeking VC funding, you need to ensure whether its the right move for your startups:-
• You are in an excellent place to have venture capital funding if you make sure to have a great business plan. A business plan is the blueprint of your business. It would help if you showed precisely how you would utilize the money and make your business grow. Not only that, you need to be able to prove that there is high demand and paying customers for your product/service in the market.
• A startup may have many financial uncertainties. Without a financial model, you cannot guarantee the expected return for your investment. But, if you can show the accurate picture of the financial model you have successfully started earlier, you’re on the right track. It proves that you have soundly managed to run a business before with reasonable risk.
• As a first-time founder, your experience may not be suitable as your VC. You may not know how to get off the ground. Also, it is pretty challenging to attract the right employees for your startup. In this case, you can move ahead to find a VC willing to invest in your business. You will gain a trustworthy partner for your startup with a perfect balance of networking, advice, sales strategy, and many more.
• Another critical factor to be considered before seeking VC is to know your business has to be fundable, that is, need a viable product, quality management team, and considerable market opportunities to stand out in the market. If this will be okay in the future, it’s always better to seek help from them. Otherwise, it might be a waste of time.
• Lastly, Raising venture capital requires spending much time to get the right VC for your startup. It may take many weeks, months, or even years to get accepted for your pitch. Further, you can need to be prepared to face much rejection. If you can dedicate your time and effort to conduct busy meetings, presentations, and practice pitching with them, go ahead to seek VC. This factor is based on your mindset and preference to manage time.
• Suppose you can execute your pre-determined goals and strategically expand your business in the future. In that case, you can approach VC funding because they are searching for those startups that have the potential to grow bigger and succeed extraordinarily. Assure them you are the most desirable for their career.
Considering the factors mentioned above can help you know whether you are in an excellent position to seek VC funding. Obtaining VC is a fierce commitment for startups. Nevertheless, Make sure to find the right funding source for your startup.
USP is the abbreviation for Unique Selling Point or Unique Selling Proposition. USP is one of the fundamental elements of a marketing campaign. Simply, it refers to what you sell, to whom you sell, and why you sell in the market. A USP can be a unique product/service, attractive customer service, company mission, or brand awareness that focuses on customer value. It makes your startups stand out among the competition in the market filled with similar items. Startups should have in-depth knowledge about their target audience, competition, and industry trends to find their USPs. Useful, interesting, and engaging USPs are essential for all startups. A powerfully built USP can aid you in making marketing and business decisions.
Before developing a USP for your startup, an entrepreneur should ask himself why people choose to buy your product/service apart from other competitors? The reason may be low price, high quality, good customer service, fast shipping, return guarantee. Well, If you want to know how the world sees your product/service, ask your target customers who choose you. You can email a survey or conduct interviews with them to craft your USP. Note down your competitors by googling and preparing a list of distinctive benefits that you intend to offer.
Suppose; if 80% of customers buy from you because of your best customer service, this becomes your USP. Then add your tagline as, for example, The safest car with the best customer service! Here are some examples of successful companies USPs to get the point:-
Head and Shoulders- “Up to 100% Clinically proven to reduce dandruff”.
Bosch- “Invented for life.”
Dominos Pizza- “Fresh hot pizza, delivered in 30 minutes or less or it’s free”.
Dollar Shave Club- Shave time. Shave money.
Every company is different and has its own USPs, but the goal is to convey why your products are better than competitors. As a startup, you will be entering the market with other competitors; it is mandatory to be aware of USPs to attract customers. So after deciding the business idea, don’t forget to think of your USPs!
Finance is the lifeblood of business. Right from the moment entrepreneur thinks of a startup, there arises the need for finance to grow and scale. One of the most common reasons why startups fail is due to a lack of funding. Without proper funding, a startup struggles to reach its potential. So it is more vital to state the funding requirement before looking into its sources. Listed below are some reasons to raise funds for startups:-
• To get started:
During the initial period of operations, startups usually generate low revenue. So funding is needed to get off from the ground. It requires man, material, office space, and websites to keep the business idea alive and grow on a solid base.
• Asset purchase:
Funding is necessary to purchase core assets of the startups like equipment, plant, machinery to complete its operations.
• Cash flow:
Startups may require funds to cover day-to-day operational expenses—examples: salaries, electricity, and telephone bills, insurance.
• Business Expansion:
It is likely for startups to take their business to the next level when they generate more profit. Funding enables conducting market research, hiring professional talents, moving into new premises, or developing the company.
• To develop new products:
In a flexible environment, competitors are constantly updating their products. To compete with them simultaneously, startups need to create innovative product/service which requires funding.
• Additional value from investors:
Investors approach for getting funds. Beyond funding, investors offer additional values to startups like knowledge, connections, expertise, advisory, and resources, increasing visibility.
• Attract potential market:
Effective marketing is essential for startups, especially at the early stages. When a startup generates revenue, it may sell its product/service into new markets to get new opportunities and get their attention. Additionally, they can prove to their potential investors and customers that they are worth considering. To pay for marketing costs, they require funding.
Define the purpose of raising funds to your potential investors so that they can reach out in your funding issues. The exact funding requirements depend upon the type, the current situation of a startup, and the value they offer to the public.
You will be excited to get your work ready after having a great idea and team. But what about fundings to bring these ideas into reality? Startups today have numerous options to get the financing they need. One of the options is approaching investors who allocate capital and resources for the smooth working of startups. Defining what type of investor your startup needs will be quite hard. Take a look at the types of investors for startups.
• Personal Investors:
Personal investors like friends, family, and relatives are the cheapest way of raising funds before approaching other sources. They motivate, support you in every aspect of your business, and even offer you funds without security because they know you very well and want to see you succeed. But in some situations, you may have extreme risk and lose money, leading to misunderstanding and damaging your relationship with them. So seek help to get off your startup from the ground.
Startup Accelerators, also called seed accelerators, are short and more structured programs (usually 3-6 months) to rapidly accelerate and scale up startup growth. It provides connections, mentorship, advice, education, and a substantial amount of capital, and in return, they expect a certain percentage of equity for their company. The accelerator will be a better option if your startup has validated MVP but not enough funds to scale. Some of the well-known Accelerators in India are TechStars, Plug and Play, Y combinator, Dreamit.
Startup incubators are specially designed programs that help startups to shape their business idea at a lower cost. It provides accelerator services like networks, advisory, office space, marketing support, education, and many more. They are usually non-profit organizations run by private and public entities, including economic development organizations, local colleges and universities, trade associations, and government entities. The time frame is not fixed, but they are generally committed for a more extended period (say 1-2 years). They may or may not take equity of your company. If your startup faces some technical, legal, or operation issues, incubators will be a good fit to solve them.
• Venture capitalist:
Venture Capital(VC) is a financing tool for startups with high-growth potential. The investors who provide venture capital are called venture capitalists. Beyond financing, it offers services like industry insights, mentorship, support, and connections. They are usually wealthy individuals or institutional investors who target startups projecting enormous growth and assisting a considerable amount of finance for startup expansion. They demand a high equity stake and participation in management decision-making. It is a riskier investment but offers high rewards.
• Angel investor:
Angel investors (also known as seed investors, business angels, angel funders) are successful individuals who provide capital for getting started. They take a long-term view of startups to save them at the risk of failing and seek ownership equity or convertible debt in return. Amount invested by angel investors is comparatively low when compared to VC. Some of the essential angel networks in India include angel list, Lead Angels, Indian Angel Networks.
• Peer to peer Lending(P2P):
P2P Lending is the practice of lending a small amount of finance to startups from different investors via the online platform. Startups can get into their official site, sign up, and list their financial requirements. The investors prove the application based on their credit history, and startups can get their funds quickly. There is no intermediary, collateral, and interest rate is comparatively cheaper than banks. Upstart, Kabbage, Zopa, Prosper, and Funding Circle are India’s famous P2P lending platforms.
Once you onboard an investor, they are going to have a massive impact on your startup. It is critical to ensure they work well with you and your startup. Know your requirements about them. Be realistic with your company valuation and develop a clear pitch. Make sure to prove that how your startup is best to invest their money. In the end, you may or may not find the right investor, but keep looking!-whether you need investors to access their money or for their networks and resources.
Startups ask for funds when they meet investors. After all, funding is the primary purpose of connecting with them. Money helps attract professionals, introduce new products/services, compete with other players in the market, and many more. Is it enough for your startup? Well, if you think asking them for mentorship, training, expertise is a mark of weakness, then you are wrong! An ideal investor provides more than money. Investors have a network of successful investors, entrepreneurs, and senior managers that may help your startup get connected in the future. They possess industry knowledge and operational experience, which many entrepreneurs lack. You can clarify doubts relating to products, financials, hiring employees, market opportunities. Besides, it helps to manage the capital and infrastructure of your business. The choice is yours- whether to seek just money or both money and expertise. Different investors have different goals. Do the research and examine them thoroughly to determine what kind of investor your startup needs.
As a startup, you might accept funds from any investors you find around. In addition to funding, investors provide endless advantages to startups. They become part and parcel of your business relations, making it essential to understand the qualities of the right investor you are searching for. The traits below are necessary for new ventures to know about their potential investors:-
More than money, experience is significant, which makes startups scale quickly. Startups may look for an experienced investor who has a proven record of investing in other similar industries. Additionally, they should possess in-depth knowledge about their industry and business domain.
A startup look for a trustworthy partner come investor who keeps their business information confidential.
The startup faces challenges in the initial years. It will be advisable to choose an investor who can cope with challenges and remain calm and patient rather than act emotionally. He must be ready to take risks and learn from mistakes. So make them aware of your potential risk.
Beyond funding, a startup seeks those investors who act as mentor, advisor, trainer and guide at the same time. He should be supportive in both the thin and thick times of the startup journey.
The path to startups is not a straight line; it involves a lot of twists and turns. That means external factors like natural disasters, politics, fashion, and demand adversely affect startups. Startups highly recommend an investor who has a positive mindset to adopt these changes and stay flexible.
Last but not least, It will be a better option for startups to have an investor who is well confident about his abilities, talents, skills, knowledge.
Finance is vital to get business up and to run. In addition to the investors, as mentioned above, there are other financing options available to startups. Let’s check at those points one by one
Bootstrapping, also known as self-funding, refers to funding one’s own business. The entire startup rests on the entrepreneur. He can invest his savings or get them from friends and family without substantial financial obligations. This source of financing is suitable only when are starting the venture. But there arises slow growth and personal risk due to lack of external help.
Crowdfunding is the newest method of raising finance from a large number of investors through online platforms. Many crowdfunding platforms such as Kickstarter, Fundly, Indiegogo, and GoFundMe connect startups with like-minded investors. An entrepreneur can put his startup details on these platforms, and investors interested or honestly believe in their business idea/product can donate their money.
• SBA Microloans:
Microloans can be a good option for startups looking for a smaller amount of finance. Small Business Administration (a Government Entity) provides loan money to non-profit lenders. These lenders transfer it to eligible startups who can borrow loans up to $ 50,000. The interest rate generally ranges from 6% to 9%.
• Revenue-based financing:
Revenue-based financing (also known as Royalty based financing) is an alternative funding source. As the name suggests, financing is revenue-based. Startups can pledge a part of their annual revenue generated by the business to investors in return for finance. One prime advantage of using this method is that it does not require collateral and stake sale. Funds can be easily and quickly accessible with a simple one-page application process.
• Partner financing:
Partner financing is a collaborative financing option where a company gets impressed with the business idea/innovation and partners with a startup for funding. The funding company undertakes to approve the strategic and management decisions. Beyond funding, it provides assistance, guidance, advisory for operating effectively.
Investors are not only providing financing options for startups. Entrepreneurs can consider any of these as the best option, depending on the nature and type of your new venture.
Before getting started, you have to define the technical phases of a typical startup, such as deciding the role of the individuals in the organization, the process you have to go through when raising funds, preparing the budget plans, how much equity are you willing to give, and how you will increase the fund. Further, keeping a better timeline for all of these processes will be ideal.
The following points will provide insights into the technical aspects you should look into while launching a startup.
• Decide which person is in charge of the fundraising:
All the employees in the organization have a mutual goal to get the necessary funding for their startup. It is better to have a limited number of employees to manage all the funding processes throughout to reduce the complexity and the communication gap among the top authorities in your organization. A pretty efficient person in all financial aspects is the best person to take over the funding process. He can convince the investors about the funding requirements and their necessity. You need to ensure that the person in charge of the funding process is comfortable with everything he needs.
• Choose advisors/counsels for the round:
When it comes to fundraising rounds, every startup likes to get it done correctly. Since you might be busy running your startup, you can’t do it alone without help. Choose professional advisors/counsels who can give you all the answers and proves to be most helpful. The following pointers help you to identify the reasons for choosing advisors/counsels for the rounds:-
Not every startup needs an advisor/counsel, nor do they guarantee success. The decision to consult them depends on the entrepreneur’s choice.
• Decide how much you want to raise:
The common concern for many founders is to determine how much money to raise in fundraising rounds. Some founders have a clear idea of how much to raise by knowing their startup’s vision. In contrast, others raise as much as possible- up to the stage where they reach profitability in the long run and get their following fundable timeline. The amount of money to be raised depends on each startup’s growth rate and top-line revenues (profit). You will need less money if you decide to grow slowly and vice-versa. There is a higher chance of overspending and incorrect future valuation if much money is raised.
Before stepping into the process:-
Suitably spending your money is a careful step you have to make after getting funds. You have to act very responsibly to allocate these funds in the best trial. Most of the startups fail due to one reason, which is not utilizing the fund properly. So, A proper budget has to be prepared to avoid unnecessary expenses. Eventually, these startups may become bankrupt. You have to develop an eligible plan to allocate all these funds in the best way to have a better position among the competitors.
Founders will, in general, go through spending a decent measure of cash attempting to have the most fabulous office around. It might very well be required to give employees a safe and secure workspace. However, it isn’t essential to provide them with unlimited snacks and drinks. It will be more suitable for a startup to build a robust business model initially, and once it has grown, you can turn it into an expensive office.
Here the startup tends to spend more money. Startups decide to acquire market share before they become profitable and choose to give their products or services at throwaway costs, resulting in a loss. The idea is that clients will get used to the product or service and eventually start paying for it. But it only happens in rare cases.
Startups regularly need to compete with big corporations. Hence they will purchase the same tools that these people do. For some startups, this will not be a reasonable strategy. It would not be practical to invest hard-earned cash acquiring licenses for email and calendaring software. Likewise, tend to spend a good amount of money on accounting and payment processing software. Here startups need to use the advantages of present-day innovation. A lot of these services are accessible in the cloud. Startups should initially recognize that their tasks are minor, and the tools used by corporate giants may be costly and financially unviable.
The headcount of a business is a significant marker of its development. It is for this cause that numerous startups scale. Employees are a perpetual cost that multiple new companies essentially can’t afford. All things being equal, they should initially outsource some of the work to others with low and affordable prices. Just once their incomes have become robust, you can include employees permanently.
Getting funds is a highly challenging task for a startup venture. Founders need to ensure that the fund is used efficiently.
As a founder, your business can be a powerful personal thing. Transforming a thought into a completely fledged entity requires lots of effort and emotions. Each business is unique, so regardless of whether you’re thinking about Angel Investment, Private Equity, or another sort of finance totally, there’s no set standard to decide how much equity an entrepreneur ought to be hoping to offer. Most advisers would discuss a general guiding principle that you should consider giving 10 – 20 % of your equity. Giving up more can be a risk factor because you might face more funding rounds in the future, which might dilute your share further. So, if you gain enough money and hand over your bulk equity, it might put you in trouble afterward. Even giving them low equity is also questionable. Less funding means less equity transfer; asking less money will not assist you, and even the investors will not have enough commitments to put your company in a good position.
Perfectly value your business as accurately as possible, and showing your work is essential. It gives investors a clear perspective on your business, the money you need, and why you need it. From that point, an investor may scale you back or hope to contribute more, depending upon your business and their perspective on it.
Standard fundraising options for startups include – Unpriced rounds and Priced rounds.
Unpriced rounds are debt instruments converted into equity at a specific discount. This round does not require company valuation and SEC filing. It includes -Convertible notes and SAFE (Simple Agreement For Future Equity).
Convertible notes are debt instruments sold to investors where they pay you for the note. Later, you must pay back the investor the value of the note, plus interest. SAFE is not a debt instrument; it is a form of warrant converted at any dollar amount. It comes with an interest rate and maturity date. Founders who want to raise quickly and reach its milestone can opt for this instrument. Founders who want to avoid interest rates and maturity dates can go with SAFEs.
Priced rounds:- Priced rounds depend on the negotiated valuation of a company. Startups can raise money by selling the preferred stock at a price/share determined by the valuation. It requires company valuation and SEC filing. It gives you an accurate picture of your startup’s worth and division of ownership.
Creating a timeline is a plan of action that ensures every task is accomplished within a specified time. As a founder, develop a timeline for each fundraising rounds in a year’s calendar and keep track of it. Set time for the technical details mentioned above. Stick to your plan as you go along and make changes (if needed) accordingly in the next year.
If you have an innovative concept to start a venture, you have to be completely ready with all the possible things. Because launching a startup is one of the significant milestones for every founder. So, there has to be an adequately aligned plan for each step. Being a founder, you have to be ready for any situation you might face in your startup journey. The more you are prepared for the problem, the less you need to fear.
There are some elements to be taken care of while building a startup. Likewise, there should be an innovative idea and a good product/service to present in the market and validate your startup. We need a good management team to control overall function and organize all the activities before it. Further, there has to be a proper budget plan to allocate all your funds. You can also come up with some alternative solutions if your plan A is not meeting the mark.
Before you get started, check out these points to have a better position yourself with your startups.
Having a conversation with other founders will give you some input and confidence in building a startup. Try to be close to them to get a bit of quick advice, like how they have emerged, the difficulties they have come across, and how they overcame them. Also, if possible, share your ideas with them and get suggestions, and send them feedback. Adding to it, closely watch your competitors and be prepared for their rivalry. Get a talk to the customer of your competitor company, learn their requirements. This pre-execution stage can turn into a validation, market, and customer research stage.
Advice from the founder or leader of your competition company helps you deal with the situation very tactfully. Try to understand their marketing strategy, their customer’s requirements, how well they are solving the customer’s problems related to the products or services, their challenges throughout their journey, plans, and visions. Eventually, these inputs from the other founders can lead you to build your business plan.
In most cases, the early-stage startups are a comprehensive series of untested hypotheses. The strategies and tactics which your competitor uses may not fit your slot. However, it is one closest benchmark to improve your expertise in decision-making for your startup.
Most of the startups fail because of a lack of market needs. Yes, the “customer” we are talking about, one of the elementary steps to be taken care of is to take the opportunity to speak with your future customer. Just so your startup can quickly adapt their requirements and fill their needs.
In total, it is all about building a startup’s basic knowledge, understanding what you are, close examination of other founders, and having a good conversation with the customers is a lot better in developing face. It is the initial step for the execution of a perfect startup.
While going for the funding, you should not be stuck with any of the documents. All the required documents should be prepaid appropriately before meeting your potential investor. Some of the things that need to be taken care of are financial modeling, investor pitch deck, business plan, IP certificate, and market plan. After receiving the potential investors, additional documents such as term sheets and all other financial records must be ready. All the documents required should be sufficiently prepared.
All the investors want is the profit from the investment they make in all ventures. For investors to make any investments, they need to know about the company further in detail. So you can expect some in-depth question that provides them with an enumerated understanding of your startup.
Be prepared with the question the investors might ask you. After all, convincing them is one demanding task that you have to face. Here slightest of your mistake can make the investor withdraw the proposal. So thorough study and knee preparation are very much required to approach the investor in the proper sense. Before heading to the investors, try to ask questions yourself in that means you will have the confidence to speak with the real investors.
Some of the possible common questions they might ask can be;
Likewise, the investors ask numerous questions. These questions are just small glims. There is a lot more coming from the investors. You can practice all the possible questions by yourself to avoid getting stuck with the investors.
Preparation of the financial model is another substantial element you should take care of as a founder. It is the nuts and bolts of an organization. It has some significant roles before you go in front of the investors. As the number is more credible than any of the data, investors will go with the financial model upfront without considering other facts of the business or startups in most cases.
The financial model is all about understanding how well you allocate your resources and utilize the money to cover expenses. It also gives a clear idea about how well the company will perform after a fixed period. By seeing those projections, investors will have the mind to take part in your startup journey by handing you funds.
For this matter, there are some things to be taken care;
To build the financial model, gathering data is an explicitly considering mechanism for the proper assumption. Getting down adequate information is a challenging task. By collecting all the data, you have to understand whether these data will fit the requirement. Collecting the prevailing data will improve our financial model compared to the previously available information even though it is accurate. It is because current market data gives an idea about the present scenario of the recent market growth. Some of the ways to collect the existing data are with the help of Questionnaires, surveys, conducting interviews, observation, documents, and records.
Formulating a realistic financial model for a business is a necessary process. It has a huge place in terms of decision-making situations in the organization. You have to spend an excellent time researching to get the correct data to devise the financial model. Building the model requires utilizing the critical assumptions as they are the basic building blocks of the financial and business plans. Usually, it contains all the essential information needed to create a financial model. Key assumptions are fundamental to all parts of the financial forecast – balance sheets, income statements, cash flow, business plans. They incorporate the detailed cost of sales, forecasted sales volumes, general administration costs, and others.
Simply preparing the financial model does not make it perfect. Whatever the model you have built, it has to be run through different scenarios. It is the process of surmising and evaluating the possible outcomes for the future. Scenarios help identify the business’s change and the fluctuations of cash flows when there are possibly excellent and negative occasions that could affect the startup.
In the organization, there can be three types of scenarios.
Base case scenarios
Here, this particular part is very average because the financial model builds can either be highly effective or not at all compelling.
This situation is one of the severe factors to be considered while building the financial model because this projects the serious negative outcome of the constructed model. This could be the boundary line that the company might face downward; it will not affect further. Overall this case is a negative case for the overall company.
The best-case scenarios
These are the most preferred scenarios by all the entrepreneurs and the people who create the financial model because it shows its growth as expected. The thing will be according to the plan decided by the higher management. When it works according to it, the higher the productivity it will be.
Most people who create financial models check these scenarios to get an idea about the anticipated profit or loss, thereby making better financial decisions.
The pitch deck is a set of slides that gives a complete idea of your company, product, or services. It can be a powerful tool if a person is seeking funds. Investors ask for the pitch deck for the understanding of the company top to bottom. As it is designed well, they will have the concern to take a look at it.
All the decks will have a storyline that makes the investors pay attention to the company. After the storyline, the content will be in a position that clarifies the company to the investors. The founder should decide what content to be included in the pitch deck and which slide to place in the correct order. Choosing which slide to fit in the deck is complicated because the investors’ taste varies from individual to individual, so it takes expert advice to solve that problem. Collecting the traction metrics is also one thing the founder has to concern about, as it gives the idea about how the company may progress their future growth. More than market facts, the ‘number’ gives you more credible information about the improvement of your startup. So it is better to include traction metrics for the pitch deck to make the investor more attractive. After preparing the deck, try to show it to your close friends or colleagues to get their suggestions.
When all these are correctly lined, you need to practice your pitch. The technical term used in the business context talks about how well the startup will do and benefit an investor by investing in it.
Launching the startup involves many processes. You have to handle all the procedures very delicately, as a tiny mistake can cause a considerable loss. The founder should be well aware of each situation.
When a startup grows, it requires sufficient funds to scale its operations and achieve potential growth and target. The fundraising process is a roadmap to organize your selected investors on the right path. It is a comprehensive and lengthy process yet a turning point for startups that requires thorough research and planning. Let’s go into its process in detail:-
CRM (Customer Relation Management) is the software for managing potential and existing customers. Building a close long-term relationship with investors requires clear and on-time communication with them. Investor CRM makes it possible. It is a software that provides a centralized dashboard to access in one platform like investor’s database with their contact information, reusable email templates, investor questionnaires, follow-up options, pipeline tracking. It is convenient for the startups to speed up the fundraising process and access the right investors interested and similar to your industry. The following features of investor CRM:-
If you decide to raise funds for your startup, you need to meet endless investors. It seems complicated to get a couple of “yeses” from them. To simplify the meeting of these investors, a target list of investors is necessary. A targeted list of investors refers to creating a shortlist of potential investors. The more targeted the list, the better will be the chance of getting funded. It aims to find the most desirable investors who add up value to your startup culture. Further, it saves time, energy, and money for pitching to the best investors. Certain points should be taken into consideration while targeting the list of investors. Let’s have a look:-
Answering these questions can help you to list down the targeted investors for your startup.
After Collecting the targeted list of the investors, the next step lies in researching the interest of your investors. Different investors on your list might have a diverse choice of investment. So recognizing the rightful investor for your startup is a prime concern. Some investors prefer tech startups, agriculture startups, education startups; likewise, it varies. You have to conduct an in-depth study of the investors and their focus of investments, like which industry they would like to have a hand in. By sorting out this, you can approach the investors with complete confidence as your venture is according to investment flavor.
A contact strategy refers to the method for how you contact and communicate with your potential investors. After creating a targeted investor list, it is essential to build contact strategies to keep in touch with investors. Inventors are seen everywhere but start looking for an opportunity to meet and develop good relationships with them. The following are the essential ways through which investors get connected;-
Since Meeting in person happens in real-time, it helps to receive direct and honest feedback and remain memorable for investors. Body language like eye contact, facial expressions, gestures make it easier to build trust and create more interesting conversations. Further, it enables to share fresh ideas and understand needs and requirements clearly.
Social media is a great place to contact investors because it allows meeting many investors quickly. Following are the social media channels that focus on connecting investors:
LinkedIn: LinkedIn is an absolute contact strategy to build relationships with investors. Follow every investor in your target list who has a profile on LinkedIn. All you need is to create a profile on LinkedIn and reach out to investors through the search button. If they accepted your request, go for an invitation email.
Facebook: Facebook is also an excellent place to gain essential investors contacts. Share investment-related blogs and stories and stay active all the time helps to attract investors.
Twitter: Twitter is a helpful tool for startups to have a thoughtful and engaged conversation with investors. Using hashtags or keywords, search features, directory services, following the news can help reach investors.
Industry-related events are the best ways to contact investors. It provides a platform where you can pitch your ideas to thousands of like-minded investors. Find investors to introduce you to them and try to build a network. Be open, friendly, and confident, and get to the point quickly. Avoid being aggressive if they are not interested. Keep the conversations as short and straightforward as possible. Further, consider attending events like charity fundraisers, sporting events, film festivals, and yacht shows.
Meeting through mutual contacts like friends, relatives, colleagues, and neighbours could be the best to contact investors. Further, a university network of alumni or business schools having past alumni can help to find investors.
With proper research and planning, founders can decide on a good contact strategy for their startup.
Ask for intros refers to asking your mutual connections to introduce you to potential investors. Getting an introduction is the lifeblood of our growth and yet a time-consuming process if you don’t know the investor personally. Instead of begging someone to introduce you, please email your contact and let them forward or copy/paste to investors. When asking for intros in emails, include a maximum of 5 sentences, and don’t jump into asking for a one-hour meeting until they are interested in you. Start research about potential investors who are an excellent match for your new venture. The intro request should state the key reason you want to meet them and basic information about your startup.
Moreover, think about what would make the intro request compelling to the investors. Do remember to follow up with your contact once you get the intros. In short, be concise, audible, and good at asking intros.
Getting information about possible investors is very tough. It would be best if you had done your research thoroughly. It helps you a lot when you seek help from other co-founders who currently exist in a good position. They might have numerous pieces of information about investors, such as choice and pattern of investment, that could help your startup by all means. So by taking that information, you will get the idea of which investors will be more helpful to scale your startup.
Meetings are being conducted to share ideas, information, feedback, and learn from each other. The first element of the meeting deals with the schedule. Scheduling meetings with investors is the most crucial part of the fundraising process. The primary purpose is to sell your business idea and to onboard them to contribute funding. Moreover, investor meetings are said to make or break the moment of fundraising. It can be a bit difficult to schedule a meeting for the very first time. Following are points to be noted whiles scheduling investor meetings:-
Pitching refers to a presenting business idea to convince potential investors for fundraising. Apart from raising funds, it provides an opportunity to interact and build relationships with investors. Investors are pitched by 1000’s of investors. Proving how your business will survive and catch the attention of users is what sets startups apart. Below are some tips to be considered while pitching investors:-
These meetings and pitching with investors share information and build trust and relationships with investors for overall business success.
Constant communication with investors is a key to a startup’s success. It becomes essential to regularly update your inventors about what’s going on in your business and how they could help you. Sending investor updates can help keep them engaged and gain the proper attention, thereby building trust and steady relationships with investors. Additionally, sending updates has various benefits in terms of fundraising, introduction, promotion, networks, advice, investment of more capital. Thus, keeping investors updated is vital to get their support in the future.
An investor update should include a summary of the last period, product launches, traction, upcoming fundraisers, key hires, revenue and growth metrics, success stories. It is usually being sent out monthly, quarterly, or annually. Select a schedule for your updates and stick to it. Use a simple email format and present it in bullets, numbers. Keep the content concise to hold the investor’s attention. Also, investor updates are done through social DM, SMS, or via an online data room.
Investors are a crucial part of any startup as they provide funding support to the company. But you cannot simply go to an investor without knowing their preferences to invest in which sectors. First of all, you need to make a list of investors. By sorting out the names of some credible investors, the next task is to study their nature and preferences, like their taste of investments, their past investments done, and how they will raise the fund. The interest of the investors varies according to the different styles of the startups.
Finding the right investors for your startups is an essential factor that you need to consider. An investor should create value for your venture by funding. Some of the preferences which the investors do consider can be-
In this category, investors who support the startup will go for the industry check whether the current industry which the startup has initiated can grow at its full potential or not. Here the investor will try to generate the value for the startup for the particular industry. So you have to identify which investor is interested in which one.
Location matters a lot for some investors, and they prefer to invest in a nearby area that helps them observe their investments. Or rather, they give importance to the local startups. Startup valuation can also vary from a different location, for example. The startups in Bangalore or Mumbai can have a higher value than Himachal Pradesh or Sikkim startups.
Here it can be a problem when coming to the future fundraising processor for an exit strategy too. Investors feel difficulties in an exit as they care about the location. Your decision should be favourable for your startup for choosing the right investors who prefer their place.
The investor’s track record for treating their founders is one of the factors you have to consider. What about taking part in financial rounds? What is the successful exit?. These questions you can make out how the investors will act for your business. Also, ask them about their portfolio of investments and their recent investments failure. These questions can give an idea about how they help in your difficult times.
For an experienced entrepreneur, money is the minimal measure of significant worth that they’ll get from good investors. If you have a promising startup that will scale in the future, then funding is a sure thing. So you have to find an investor who can give you good advice, connections, and other benefits, an investor who can take you from your current position to the next level of growth.
By sorting out these lists and their area of preference, you will find an idea of investors who are credible for your startup. It reduces the vast list of investors you have and cut short into your startup’s preferable investors.
After collecting the details of the potential investors, you have to sort it out according to your requirement. From the list you made, it will be a simple job to find an investor who can satisfy your needed funds and give pieces of advice. You have to identify which investments will help you improve your current position and find the investors who will make that investment. It is a meticulous process to meet the investors telling your needs and gaining the fund, so you need to be well prepared. The slightest of flaws can cause you massive damage.
Do reference calls for investors:
Onboarding new investors are a long-term decision that requires due diligence. Reference calls are an essential part of due diligence to ensure potential investors have worked with other companies. It is a handy source of information conducted when investors are ready to invest before making decisions to work with them. The call will be for 15-20 minutes. Prepare a references list to talk with those people to whom investors are well-known, such as friends, colleagues, peers. One can start the conversation by introducing himself and his purpose. The following are the essential questions to be asked:-
How do you know the investor?
How long have you worked with the investor?
Could you share your experience with him?
What are his strength and weaknesses?
What kind of investment do they prefer to do?
Do they come prepared for the meeting?
Do they have potential skills, industrial knowledge to invest in a startup?
How does he react to upcoming challenges or risks?
What is the value-adding things investor has done for your company?
What is your opinion on me working with this person?
You can add more questions and end the call by thanking the person for their valuable time.
The entire effort for the fundraising process is to impress investors to take your startup to the next level and consider it a good investment. If your product/service is super fresh and unique in the market, they will be full-on, ready to put their money behind it. You should show a business plan to scale your new venture and make their money back. Also, Project a revenue model that cuts down all the unnecessary costs and expenses (since they may not be able to spend more on the initial period of its operations). These will make investors believe your startup is something worth investing in. Likewise, there are several ways to convince investors to give their commitments. So try your best to impress them. It will not be possible in a single day or night, but keep looking for your desired partner with determination and confidence.
Negotiation is a must-have for every startup fundraising. Negotiating the terms refers to an interactive process between investors and founders who agree to reach some form of compromise without arguments. A good negotiation brings better bonds and closes the best deals with investors. Let’s discuss some of the negotiating terms in startups:-
Every Investor will have their interest, requirements, preferences. They focus on getting more return on their investment and look from different angles/perspectives to get the best investment opportunities. Startups should get into investors’ minds to know what is important to them and consider their concerns to attract them and get funding. Moreover, they are not just investors, but also a partner who provides several connections, advisory for your new venture’s upliftment. Let’s look at things that investors expect from startups:-
A Capitalization table (Cap table) is a spreadsheet that depicts a startup company’s total capitalization or total ownership stakes. It lists down securities like common stocks, preferred stocks, warrants, convertible stocks, restricted stocks. Investors usually ask startups to show their cap table to know who has invested, how many shares are given, how ownership is diluted. Startups can use this information to understand how to price fundraising rounds, forecast the potential payouts, and accurately present the startup’s history and holdings in the event of an audit.
The cap table is prepared in a spreadsheet with a simple layout at the initial stage of startup operations. It represents the name of investors on the Y-axis and the type of securities on the X-axis. Listing of investors can be done in either ascending or descending order based on their ownership. With each fundraising round, the cap table needs to be updated to reflect the changes. There are multiple ways to create a cap table and no standard format for it. Thus, a well-organized cap table can help you to make intelligent decisions for startups.
Exist strategies are being used by the investors, owners, venture capitalists, or traders who get out from the investment according to their interests after a certain period. The investors execute a plan to jump from one investment scenario to join an area or sector to invest.
The standard type of exit strategies are:-
According to the founder’s interest in how he wants his company in the future, these plans are decided according to the founder’s interest in how he wants his company. For example, a strategic acquisition will relieve the entrepreneur of all roles and duties in their company as they surrender control. And if you plan to get on the stock market by listing (an IPO), it is significant that your organization follows specific accounting guidelines. Likewise, most founders are not keen on a big-company role and are only interested in start-up companies. A clear-cut leave plan assists entrepreneurs with moving their next big project.
A term sheet refers to a non-binding agreement that the founder and investors agreed upon relating to the critical terms of investment. It is being provided during an investor meeting in bullet point format. Negotiating term sheets is an annoying process simultaneously; as a startup, you will be unfamiliar with specific terms that make up the contract. Some investors may exploit inexperienced founders and make unfavorable terms in the term sheet. So it will always be better to talk with your other founders or hire an experienced lawyer to receive the suitable term sheet. With the guidance of experienced lawyers/founders, you will gain support to understand essential terms and avoid the risk of a poorly negotiated term sheet.
A term sheet is a guide for preparing the final investment agreement. Entrepreneurs and investors should not be legally responsible for acting upon the terms and conditions outlined in the term sheet. A term sheet should list the investor’s names, investment amount, and the money to be raised. It should also clearly state the details regarding liquidity preference, investor rights and protection, restrictions on founder’s activities, and anti-dilution provision. Remember to negotiate company valuation and its methods. Minor changes in the terms can have severe effects on your startup. Likewise, there exist so many conditions to be full-filled to sign on a term sheet. Engage a professional on the legal side to get good quality advice and do the best review for your term sheet.
Finishing the investment process is the last stage of the startup checklist, where new ventures choose the right investors, prepare contracts and legal documents ready to get started. Let us discuss each in detail:-
In the startup stage, most founders will shake hands with the people saying that ‘he will give you the funds for your venture’ it is not a good practice because handing someone with wrong hands will create more problems than usual and cause the rapid downfall of the business. Not all investors will fit your startup. So it would help if you chose the investor with almost importance. Here are some of the details which has to consider while selecting the right investors.
The initial step before picking an investor is understanding the business model or kind of business that the startup needs to embrace. Many investors have specialization in some particular industries. Therefore approaching investors who have an interest in your business proposal is significant. In that way, not only will you get the fund, but also he will guide you and provide support.
It is a significant factor that the investor has to stand by the founders’ side and trust and believe in their idea. During the inception of any startup, ups and downs are inevitable, but good investors will not leave the startup in hard times. So the trustworthiness of investors is necessary.
Startups and founders need to figure out those capable investors who have a solid network, which will prove decisive over the long run. Besides funding support at the beginning stage of any startup, they need expert advice and feedback from someone with experience in the respected fields. Finding a good investor who can benefit with funds for you and giving valuable advice can lead your startup to a significant milestone in the future.
Yes, of course, the investor should be very capable of providing you with the fund as required. It is ideal for picking an investor who is capable of handling different rounds of funding. If the investor’s financial health is not good, they will put him under tremendous pressure, affecting the new companies he invests in.
There is no doubt that investors are significant for each startup. in any case, it is turning even more hard to pick the right one. That is why founders and startups need to complete exhaustive research and consider all the above pointers before moving toward anybody with a substantial arrangement and business pitch.
If you are going to start a venture with a partner, it is all-important to have a contract. A contract refers to an exchange of promises between two parties. Contracts may be oral agreements or handshake agreements, but it is preferable to get them in writing to eliminate misunderstandings between parties. Startups have to draft necessary contracts with investors, clients, supplies, and employees.
For instance: If you are a service provider, you promise to provide service to your clients, and they will promise to pay you for that service. In case if the client doesn’t pay you, you can pursue legal action against him.
The startup will not be aware of legal issues, so it’s better to hire a lawyer to negotiate the terms of the contracts. With the right lawyers, we will feel confident to move further without falling.
Not forming a robust legal structure is one of the most significant risks of failure for many startups. So, founders need to cover the startup’s legal documents to turn their ideas into reality. The valid legal documents/contracts to be signed include the following:-
You are so focused on achieving the goals that you often forget to celebrate—after being capitalized. Success is an element of your group’s efforts, and you need to praise those efforts. Therefore, celebrate with your team because those team’s dedication helped you in all ways to gain the required funds and results. Share your happier moments with your support team. It brings motivation and encouragement among the team to work harder. Also, keep in mind that you need to encourage their positive morale as you’re going ahead.
After receiving the necessary fund, you can give press releases to inform the public about your funding success. This is one good way to promote your startup’s creditability. The public understands how much worth your startup is and creates an overall image for your startup.
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