It seems every startup in the country ( India ) is doing a great job in raising funds. Every day we hear about some startup raising millions of dollars.
There is, however, more to it as a vast majority of Indian entrepreneurs fail to raise any money. Beyond the fancy presentations and excel sheets, raising money from investors is still a tough job.
There are certain aspects that need to be kept in mind when raising your first investment. ( See below 5 Steps for Startups to Raise First Investment )
1. Be clear about your business problem and solution – There can be nothing worse than being vague about what you are trying to do or unclear about the idea. One should take time out to define the problem, the approach you would take, the scope of the solution and if it has an addressable market. In many cases there may be a problem and a subsequent solution, but the addressable market may be too small or niche to excite an investor. Do not jump into a business become everyone is doing it and you think there is money to be made. Find an unaddressed problem and determine how best you are able to overcome it.
[ Also read: Inspirational Journey of Flipkart ]
2. Get a committed full time team
Starting up is never easy and needs tremendous focus, dedication and zeal. Working hours will be long, problems will be many and resources will be far and few. In such a case, an entrepreneur needs a strong, committed full time team working on the business. Working on the idea as a side project can only work during the ideation days, but not once the business has taken shape. Investors want entrepreneurs and their team to be focused on their business and not sidetracked by another job. Investors like entrepreneurs who have rolled up their sleeves and got their hands dirty in making the startup work.
3. Put your own money, small or big, before you ask
As Warren Buffett has described, it helps an entrepreneur to have his skin in the game. This means an entrepreneur must be monetarily invested in his idea and business and must have something to lose for not achieving the stated goal. You do not need to invest millions to get started, but a smaller amount also shows that you have stakes involved in the outcome of the business. Investors like to see startups where the founders are invested in monetarily.
4. Show some traction
An idea, however brilliant on paper, will only remain an idea if you do not execute it. There are very few investors that would invest in the ideation stage itself and most want to see some level of traction. This allows the investors to make a better judgment of the business and what it has set out to do. It also gives the entrepreneur the ability to show that his idea works and people are willing to adopt it. This is turn will also lead to better valuations. What would, however, be an icing on the cake is if you can get paid customers from day one and make a profit on each transaction that you carry out.
5. Approach multiple investor and gauge interest and feedback –
Do not put your eggs in one basket. When looking for funding it is wise to approach multiple investors. Very rarely does it happen that the first investor you approach in your first meeting would write you a cheque. As an entrepreneur, you must also look to find the best deal or valuation possible for your startup and that can happen only happen when you approach multiple investors. This process is also a great way to know more about aspects of your business an entrepreneur may have not thought over and to get a general feedback. With each pitch to an investor, an entrepreneur will only walk out wiser.
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