I have heard radio interviews and seen very successful social crowdraising campaigns, that raise their money and go onto become multi-million dollar companies, spoke with an entrepreneur who had 15 million to start for his business. While others struggle for years, or churning out idea after idea, or sit with $0 on gofundme or indiegogo. Is it luck? Talent, is it chance, a phase of astrology, is it the people you know, your credit score or earnings, the family you were born into, energy blocks. Is it neural pathways, is it if you nap like Einstein did? What is it?? I have pondered this for years. It is very hard to raise seed money. Yet some people know how to do it so well!
I have worked in a company like you have described who is trying to make money for the past 10 years and yet not successful. The success of any company lies in the following factors all coming together in perfect harmony:
1. Founders are driven by impact, resulting in passion and commitment
2. Commitment to stay the course and stick with a chosen path
3. Willingness to adjust, but not constantly adjusting
4. Patience and persistence due to the timing mismatch of expectations and reality
5. Willingness to observe, listen and learn
6. Develop the right mentoring relationships
7. Leadership with general and domain specific business knowledge
8. Implementing “Lean Start-up” principles: Raising just enough money in a funding round to hit the next set of key milestones
9. Balance of technical and business knowledge, with necessary technical expertise in product development
Companies who do not follow this process fail considerably to raise money and struggle for years. Let us look at the process of how to raise money:
1. Ideation/Pre-Seed Stage
This the stage where you, the entrepreneur, has an idea and are working on bringing it to life. At this stage, the amount of funds needed is generally small.
Given the fact that you are at such an initial stage in the start-up lifecycle, there are very limited and mostly informal channels available for raising funds. Common funding sources utilized by start-ups in this stage are:
a. Bootstrapping/Self-financing: Bootstrapping a start-up means growing your business with little or no venture capital or outside investment. It means relying on your own savings and revenue to operate and expand. This is the first recourse for most entrepreneurs as there is no pressure to pay back the funds or dilute control of your start-up.
b. Friends and Family: This is also a commonly utilized channel of funding by entrepreneurs still in the early stages. The major benefit of this source of investment is that there is an inherent level of trust between the entrepreneurs and the investors
c. Business Plan/Pitching Events: This is the prize money/grants/financial benefits that is provided by institutes or organizations that conduct business plan competitions and challenges. Even though the quantum of money is not generally large, it is usually enough at idea stage. What makes the difference at these events is having a good business plan.
2. Validation/Seed Stage
This is the stage where your start-up has a prototype ready and you need to validate the potential demand for your start-up’s product/service. This is called conducting a ‘Proof of Concept (PoC)’, after which comes the big market launch. To do this, the start-up will need to conduct field trials, test the product on a few potential customers, onboard mentors, and build a formal team. Common funding sources utilized by start-ups in this stage are:
a. Incubators: Incubators are organizations set-up with the specific goal of assisting entrepreneurs with building and launching their start-ups. Not only do incubators offer a lot of value-added services (office space, utilities, admin & legal assistance, etc.), they often also make grants/debt/equity investments
b. Government Loan Schemes: The government has initiated a few loan schemes to provide collateral-free debt to aspiring entrepreneurs and help them gain access to low-cost capital. Some such schemes include CGTMSE, MUDRA, and Stand-up India.
c. Angel Investors: Angel investors are individuals who invest their money into high potential start-ups in return for equity. Reach out to angel networks such as Indian Angel Network, Mumbai Angels, Lead Angels, Chennai Angels, etc. or relevant industrialists for this.
d. Crowd funding: Crowdfunding refers to raising money from many people who each contribute a relatively small amount. This is typically done via online crowdfunding platforms.
3. Early Traction/Series A Stage
This is the stage where your start-up’s products or services have been launched in the market. Key performance indicators such as customer base, revenue, app downloads, etc. become important at this stage. Funds are raised at this stage to further grow user base, product offerings, expand to new geographies, etc. Common funding sources utilized by start-ups in this stage are:
a. Venture Capital Funds: Venture capital (VC) funds are professionally managed investment funds that invest exclusively in high growth start-ups. Each VC fund has its own investment thesis – preferred sectors, stage of start-up, and funding amount – which should align with your start-up. VCs take start-up equity in return for their investments and actively engage in mentorship of their investee start-ups.
b. Banks/NBFCs: Formal debt can be raised from banks and NBFCs at this stage as the start-up can show market traction and revenue to validate their ability to finance interest payment obligations. This is especially applicable for working capital. Some entrepreneurs might prefer debt over equity as they debt funding does not dilute equity stake
c. Venture Debt Funds: Venture Debt funds are private investment funds that invest money in start-ups primarily in the form of debt. Debt funds typically invest along with an angel or VC round.
d. TReDs: To decrease the financing concerns faced by MSMEs in India, RBI introduced the concept of TReDS in 2014, an institutional mechanism for financing trade receivables on a secure digital platform. Trade Receivable Exchanges such as M1xchange, standardizes the process of funding MSMEs via Invoice Discounting. TReDS addresses the gaps in MSME industry as enterprises face challenges in getting their payments on time, thus creating working capital discrepancies. TReDS is a timely and effective solution to drive the MSME sector to the next phase of Indian economy.
4. Scaling/Series B & Above Stage
At this stage, the start-up is experiencing fast rate of market growth and increasing revenues. Common funding sources utilized by start-ups in this stage are:
a. Venture Capital Funds: VC funds with larger ticket size in their investment thesis provide funding for late stage start-ups. It is recommended to approach these funds only after the start-up has generated significant market traction. A pool of VCs may come together and fund a start-up as well.
b. Private Equity/Investment Firms: Private equity/Investment firms generally do not fund start-ups however, lately some private equity and investment firms have been providing funds for fast-growing late stage start-ups who have maintained a consistent growth record.
5. Initial Public Offering
Initial Public Offer (IPO) refers to the event where a start-up lists on stock market for the first time. Since the public listing process is elaborate and replete with statutory formalities, it is generally undertaken by start-ups with an impressive track record of profits and who are growing at a steady pace. One of the benefits of an IPO is that a public listing at times can increase the credibility of the start-up and be a good exit opportunity for stakeholders.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath