Six Myths About Getting Your Startup Funded
It’s not easy to find funding for your company, and there are plenty of misconceptions about how to go about finding capital. Today, we’ll discuss six myths that entrepreneurs commonly ask me about when raising capital and having questions about funding.
Myth 1: It takes a lot of money
Many people believe that it takes a lot of money to finance a new business. This is false. One of the most important challenges any entrepreneur faces is having money for investment growth. While starting a business may seem like an impossible task to those without capital, there are still plenty of ways one can get the funds necessary to start their business.
Successful entrepreneurs who don’t believe this myth design their businesses to work with little cash or accept money from friends and family. They borrow instead of paying for things, they rent instead of buying, and they try at every corner to turn fixed costs into variable costs. For example, they may pay people commissions instead of salaries or they may grant people who perform services sweat equity instead of cash.
Myth 2: Venture capitalists are the only option
The second myth claims that the only way to get funding is through venture capitalists. This is false as well. Venture capital financing is the exception, not the norm, among startups. Non-VC sources of financing are giving entrepreneurs as many choices as VC funds these days.
This includes angel investors, affluent individuals who invest smaller amounts of capital at an earlier stage than VCs would. They fund more companies than VCs and their share is growing.
Another source of startup investment is crowdfunding, where entrepreneurs raise small amounts of capital from a large number of people in exchange for equity or non-equity rewards such as products from the newly funded company.
Myth 3: You must know someone who knows an investor
Myth number three claims that if you don’t know someone who knows an investor, it’s impossible to find one. This is also false. There are many ways to find investors. One way is by word of mouth, i.e., talking to friends, family members, and colleagues about potential referrals.
Another option is looking at an investor’s website or LinkedIn profile page. He or she has a bio section and may mention the types of investments that he or she is looking for.
The third possibility involves researching potential investors online. You can review their recent transactions on CrunchBase, which is a platform that aggregates information about startups, or checking out what they’ve written on Quora, a question-and-answer site.
Myth 4: You must already have sales
According to myth number four, investors want to see that you already have traction with customers or sales before they invest in your company. This is false as well. Investors would like to see some customers or sales, but they are more likely looking for a compelling story behind your company and a fantastic leadership team.
Investors are often investing in the potential of your company, so it’s important to keep them excited about how your company can scale and address a large market opportunity.
Myth 5: You must be in Silicon Valley or New York
According to myth number five, you need to be in Silicon Valley or in New York City for the best connections and access to VCs. That’s also false. There are start-ups that get funding from investors all over the country. You can be in a smaller market and still raise capital with some great connections.
The best opportunities for connecting with VCs are through events like conferences, networking groups or introductions from angel investors who may have already invested in your company. When you find these opportunities, it’s important to go into them prepared with answers about how you’ll scale up if you do receive money from investors and what sets you and your company apart from competitors.
Myth 6: You only get one chance
According to myth number six, you only get one chance. If an investor says no, they will never invest in your company. Once again, that is false. There are many factors that go into whether or not VCs invest in companies.
So it’s important for entrepreneurs to take rejection with the attitude that the door isn’t closed yet. You may be at a stage that’s too early for them right now, but if you update your pitch tag, refine your business model, or grow your revenues, then investors may well see a more compelling case when they take another look at your company down the road.