How to Get Funding for Your Business … and When to Turn It Down

Funding is vital for startups and small businesses. Fortunately, venture capital firms are handing out record amounts of money.

What’s the best way to get funding for your business? It’s not enough just to have a great idea, eager customers, and a sound business strategy (although all are essential). You need to position yourself to receive funding. Here are three ways to make sure you’re positioned correctly.

  1. Document your plans for the funding.

That sounds obvious, but venture capital firms need to know your plans for the money. It’s a key differentiator between you and other firms for them. Document what you need to grow, for example, by making a record of customer recommendations for your existing products.

Whether you’re in a relatively new field or an old one, describe how your product entries make a difference. The start-up Artie, for example, recently received a seed round of seven figures largely due to its ability to place its product, a virtual avatar, as a solution to declining video engagement on mobile devices, according to Entrepreneur.

Know your market’s potential to grow.

2. Know your market.

You need to know your market, including competitors (and their results and plans), products, and customers. This needs to be an important part of your pitch; compile a SWOT (strengths, weaknesses, opportunities, and trends) analysis. Know the potential risks, and discuss them in your funding pitch. Funders want to know what their opportunities and risks are; as a result, they need to know yours.

Knowing its market allowed the start-up Handshake to reach success. Handshake is a social media platform that connects college students and employers. Last year, over 14 million students and 250,000 employers used it.

3. Make sure you’ve done due diligence.

The due diligence process reviews every aspect of a company, including its financial reports and compliance with laws and regulations. Perform due diligence with key business leadership in your company, of course, and bring in lawyers and accountants.

Failure to do the latter can be serious. The startup TikTok neglected to perform due diligence on privacy law. As a result, it received a fine of nearly $6 million. Fines can erode your financial results and tarnish your reputation.

Know When to Part Company 

Funding can, of course, be very alluring. It can seem like the bridge between your company and further success (and in many cases, it is). However, you also need to know when to walk away from funding. Be sure the funder respects your company and its vision.

The co-founder of financial services start-up Kabbage, for example, recently wrote in Inc. that an early potential funder, a large bank, required a bricks-and-mortar incarnation of Kabbage before signing the contract. Yet Kabbage is an online provider of financial services to small businesses and consumers whose key differentiators are its solely online presence, real-time data, and efficient costing structure. The request showed a potential discomfort with the nature of Kabbage’s business and its overall mission.

Don’t let your funders dictate your business, especially when their terms might be moving the business away from a core identity. Strong ideas and execution will receive funding; don’t be afraid to walk away from a less-than-perfect fit.

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