How do tech startups get funding?
Need an investor to help you grow your tech start-up?
There are now more funding options than ever before, so it's critical you choose the right type of investor for your needs. Working with the right investors can be the perfect way to take your business to the next level, but take time to consider what you really need before you begin. It's important to understand what you need from your capital-partnership so approach the funding raise with the right mindset.
STEP ONE: Get you story set
The viability for funding depends largely on the specifics of your business. Many existing businesses have access to banking business loans that would not be available to start-ups. Paradoxically, tech start-ups that can show fast-growth can have access to investment funding that would not be available to slow growth, established businesses.
Your business plan is an essential piece of the funding need. Not simply explaining, but showing the money you need, where it’s going to go, and how long it will take you to earn it back is key, almost regardless of organic success so far. Creata summary first (1-pager ideally, or topsheet),
then go into a pitch as they'll want to see a business plan for the process of due diligence.
Clarify your company’s mission
As part of your business plan and overall business growth, you need a company mission to build around. Investors want to know "why" – the reason the world needs your business. Try to communicate what your business solves as succinctly as you can. If your USP is too complicated or articulated poorly you'll lose investor interest. Be simple, be clear.
Flesh out your identity
Build your brand and company voice. Investors look for clear brand value, especially when it comes to social media presence. By marrying a strong company mission with a distinct, well-developed brand voice, you're halfway to finding the right investors. If you are struggling to articulate, invest in a branding, marketing or comms agency. It’s amazing how much a concise sell backed by clear branding can help push you over the funding finish line.
STEP 2 – what you can do
Social Media: As a start-up use social media to test your chosen market, gain niche followings and attract investors. You can take an active approach by collaborating and leveraging sponsored posts or influencers. If you can get the social profile of potential investors, it might be worth reaching out to them directly (once you have a micro-following to illustrate your market hold). One Dm could be all it takes to get the finance ball rolling.
Blog: Blogging is highly underrated and surprisingly effective. Telling your story, showing investors the steps you have made to-date and illustrating the potential behind investment will only help your clarity and visibility when any investor begins their processes of due diligence. A good option is to go to the blogs of the investors that you are looking to target. They all read their comments and often engage with responses. Leave a comment to get noticed and start building the relationship.
Start Sharing: Growth needs to be strategic to be successful. Many start-ups aren’t focused on simply getting their product/service out there in the hands of customers,and ideally, investors. If you can acquire real customers, you can achieve better terms from better investors.
STEP 3 – pick you pay-pal
How to find an investor
In general, it's best to start small and move toward bigger options later – in terms of whom you seek funds from as well as where you look for funding. You have options, see which model you feel best fits your tech start-up:
Crowdfunding: This is a good early funding source. It's important to establish whether there is a demand for your product or service before posting it on a crowdfunding platform.
Traditional bank loan: Once your business is established, with some operational history (and proof of backing to date), you can start looking to banks for a traditional loan. Obviously this requires extensive documentation and financial information as you know, so be ready.
Angel investors: Much like seeking bank loans, angel investors are a good early step. Angel investment is much more common than venture capital and usually is far more available to start-ups, and at earlier growth stages too.
Accelerators: Some provide funding options, but most connect you with established start-up veterans who can give you advice on finding funding and developing your products. Accelerators aren't typically a main source of funding, but it's important to be aware of how they can benefit your set up. Popular accelerator programs have an open invitation for applications from serious entrepreneurs.
Online Fundraising Platforms: The past few years has seen myriad online fundraising platforms emerge. Highly popular with sophisticated and accredited individual investors, angels, and even banks and funds looking for new ways to deploy capital.
Venture capitalists: Once you have some initial backing, pitching to venture capitalists is a great way to acquire large amounts of money to scale your business. Often the latter stage in a new company's funding, if you have a successful business idea that would benefit from fast scaling and high capital outlay, working with venture capitalists is a viable option. It is worth noting that venture capital financing is rare. Only a very few high-growth companies with established management teams offer workable concerns.
Events: Success in fundraising is aided by increased visibility. Getting noticed by the right investors, who you know, and who knows you. Event marketing is a great way to achieve this. Try to find out who is attending the event ahead of time and schedule meetings. They are often the perfect way of meeting active investors who are there, and the perfect opportunity to perfect your elevator pitch - make it short, make it sharp, point out the potential profitability based on current (verifiable) data.
STEP 4 – AND FINALLY…
We know you know this, but when you look like you’re landing the capital to take you from start-up to unicorn, consider these few words of wisdom…
Never, spend somebody else’s money without first doing the legal work first. They will engage in due diligence on you, you MUST do it on them. Fundamentally, never spend money that has been promised but not delivered. Often companies get investment commitments and contracts for expenses, and then the investment falls through. It’s hard, but it happens, and we would hate it to happen to you.
If you feel you are at the stage of starting to seek funding but want to make sure your branding, marketing and company identity are developed enough for third party investment we would love to help. Phable is a 360 content marketing company with a proven track record in providing all the established collateral you need to project the appropriate image and ensure clarity of sell for your USP to push your funding drive over the line. From explain videos to company websites, eBook authorship to SEM and SEO, Phable offers a comprehensive service backed by myriadcase studies of incredible success. If you feel we could help you get to where you want to be, please feel free to get in touch at phable.io
Good luck, you’re going to be brilliant!