The best funding strategy for your Tech business
So, you’ve got this great idea that could eventually radically reshape the market while making you some good money along the way. You may be striving to give it flesh and bones but putting the pieces together is a lot harder than it looked from a further distance, isn’t it? One of the biggest challenges that a new and aspiring entrepreneur must deal with is funding. Startup founders are so drawn to taking their ideas close to perfection, that they never stop to actually figure out how they’re going to find the necessary capital. And when the time for that comes, most of them focus more on getting the funds rather than how to optimize their funding strategy.
If the latter concept seems a bit vague, it’s probably because you go with the majority. No worries though, keep reading to see what is the best strategy that will help you get the most money for your startup without giving away too much ownership.
1. Figure out what percentage of your startup you’re giving away
Coming up with an innovative idea or a revolutionary product is no good if you can’t be the one who brings it to life. That’s the case for people who are willing to give away a tad too much of their company in order to get the funds they need.
Although there is not a standard percentage that you should hold on to, there’s a useful rule of the thumb which you should never stray too far from. Depending on the range of your startup, you should always own more than 50%; if there are other co-founders involved, that 50% has to be split. In addition, it’s always more preferable to give a higher percentage to people who are about to work for the company, than handing out shares to investors.
For instance, 36% and 24% for you and your co-founder respectively – assuming that there’s only two of you – 20% for an angel group and another 20% for the option pool is a good distribution to follow as a guide.
Keep in mind that the same applies when it comes to the percentage of the entire budget that should be funded. Even if you’re doing all the hard work to ensure that your business is going to make several times the money you put in, never seek funding for more than 30-40% of your total budget.
2. Use all your funding options, even the ones you don’t know about
Having harnessed the power of the internet, you’ve got no excuse to pass on a great opportunity. From p2p lending, business competitions, crowdfunding and incubators, to a whole wide network of mentors, angel investors and even government funding every option should be thoroughly examined and compared to all others.
It’s easy to ignore the source of your funds, when you’re too busy making sure that you get funds in the first place. Nevertheless, it’s important to consider all the differences between your sources.
With a first look, p2p lending or crowdfunding may be a more appealing option on the grounds that both come with a lower interest rate than an incubator or a VC investor. Hence you won’t have to start off by owning as much money. However, both of the last two options offer vast resources of mentors, training, guidance and in some cases, they even help you cut down some operating costs by giving you an office to work in and an old computer to use.
3. Make sure that you can get funding whenever needed
While this one may seem a bit paradoxical, it’s as important as the other two points. Once you get your business going you want to make sure that you can compete in the market with other players who are as competitive as you. What that means, is that you need to ensure funding in the future for scalability, research, improvement, multi-channel marketing or even to purchase new equipment.
And if you didn’t have the money before, how can you be sure that you will have it in a year’s time. Let’s be honest, the business world is getting more competitive by the year to the point where you can’t possibly survive unless you can keep injecting money to your startup until it can get you some back.
Now here’s where most entrepreneurs tend to mess it up. Being eligible for further funding is not as easy as it sounds. The people who invested in you once, are not going to do it again unless they see some profit.
To achieve that, you need to bootstrap with every chance you get, update your business plan frequently, bolster your competitive advantage and prove your idea is profitable with hard numbers.
Starting from 1 and building your way up to 3 is not a walk in the park. It can get you a month, or even a year. But follow those steps properly and you will at least establish a healthy and promising business.
Victor R currently covers tech news and gadgets at https://mogz.tech/. Besides from being an enthusiastic writer and published author, when not writing he spends his time building computers and practising guitar.