The idea of securing funding for a startup is incredibly exciting. In fact, it's downright exhilarating. Investors making large offers to make dreams come true, entrepreneurs launching new companies - it's an exciting scene. The problem, though, is that this glamorous image is about two percent of the overall process. Securing funding takes a staggering amount of work, which is glossed over by most people. Here are four things that people seem to forget when talking about funding.
1. It's All About Personal Relationships
Investing is all about connections. No previous relationship is necessarily required for them to write a check, but putting forth the effort to establish a rapport makes a world of difference. Having a previous positive relationship with an investor make the entire process drastically easier. Of course, it has to be a professional relationship - very few will give a single dollar to a friend, as it can be a massive conflict of interest and cause a few too many problems. Still, understand that it's a relationship that will likely last for quite a while and treat it as such.
2. MVP Is Practically Required
We live in an era of changing standards, constant movement, and crowdfunding, which has had a stunning impact on funding. People now want some sort of proof that what they're getting into is, well, viable, and investors really can't be swayed by mere words. A minimum viable product eases a lot of worries while also clarifying countless questions and reservations. Everyone is getting increasingly selective on what they spend their money on, and no one in this day and age wants to give away a cent until they see something firm, especially investors.
3. You Can Raise Too Much
Let's say you pitch your new idea to an investor and they love it. You're expecting, say, $500,000, but they cut you a check for $1.3 million. That's excellent, right? Not necessarily. More money is great, but it raises expectations and can scare off other investors. In terms of the general public, they see a company securing massive funding and their expectations immediately go through the roof. When the final product is delivered, matching those expectations is exceptionally difficult, no matter how good the product is.
4. You Have To Find The Right Investor
Finding the right investor is a challenge; that's well established at this point. Not just anyone will do - they absolutely have to be the right fit. A common mistake is thinking that the wrong investor is inherently a bad investor - that's not true at all. A great and brilliant investor can help many companies, but if it's not a nice fit, the best investor in the world can only do so much. Instead, take the extra time to make sure that they understand and fully connect with your idea. Think of Russ Hanneman from the ever-poignant Silicon Valley - not all investors are right for you."With the proliferation of equity crowdfunding, angel networks, and micro-VCs over the past few years, there's an abundance of capital available to early-stage startups," says Brendan Syron, Principal at Scout Ventures, a New York based VC fund. "However, it's important that entrepreneurs think carefully about who they take money from and consider what value-add investors can provide beyond just writing a check."