How to secure funding: top tips for entrepreneurs

According to Entrepreneur, venture capital funding for startups was down 37% in 2022 compared with the previous year. There’s stiff competition out there for company owners seeking investors to help fund their startup. Here are some top tips from the experts on how to secure funding. 

If you’re an entrepreneur launching a startup, finding the right investor who will invest the money you need under the right conditions can take a huge amount of research and hard work.  

Some companies start out by bootstrapping, ie starting a company with very little capital and relying on money other than outside investments. Examples include Amazon, GoPro and Facebook, which all bootstrapped their way into existence. But most early stage businesses will need to tout their business idea to investors and tap into external sources of funding to get their company off the ground.

To be successful in securing investment, seasoned business experts say that the best approach is to think like an investor and see things from their point of view. So what do venture capital firms, crowdfunding organisations, angel investment firms and lenders look for in a startup when considering where to direct their funding sources?

1. A product or service that truly stands out

Hands down, the most valuable asset a business can have is a product or service with a unique selling point that distinguishes it from the competition. Whether you’re the only company to offer a particular product or service or you’re the one doing it best out of everyone, the likes of angel investors and venture capitalists will want to know that your business is not just one of many. You must be able to prove to potential investors that you’re certain that your product or service will dominate your target market (or that you have a plan to achieve that), and that there’s a need for your product in the market, explains Growth Business. 

When seeking startup funding, small business owners will also need a plan for how they’ll stay ahead of their rivals, Growth Business adds: “If your product is unique, it’s important to understand how long it might take for a rival to come up with something comparable. In this way the business can stay ahead of its rivals, rather than operating under the assumption that current market conditions will continue in the long term.”

2. A strong business model with high-growth potential

Any entrepreneur that’s worth their salt will have a solid business plan. It’s a sobering fact that 90% of startups will fail. And according to an informal survey of business ‘postmortem’ blogs reported by Quartz, the leading reason for that, beyond running out of cash, is an unviable business plan.

In the excitement of releasing your product onto the market and establishing a market presence for your business, it’s easy for a startup entrepreneur to overlook how to sustain that position while still growing the business.

“You need to indicate to investors that you understand the economics of your business. That you can and are moving towards building a sustainable business, where you eventually make more than you spend on each customer, and that it will get better, not worse, as you grow, “ according to Sebastian Pollok, Founding Partner of Visionaries Club in an article for Forbes.

“Startup investors seek firms with evident development potential. As a result, it is critical to describe the major growth factors you will rely on after you enter the market,” he adds.

3. A secure exit plan

When funders invest money in businesses, they want to see a profit further down the line when the business is sold, goes public or is refinanced. A startup entrepreneur should have a basic understanding of how investors will get their return on their investment, even in the earliest stages of a business, says CEO of Infobrandz, Vikas Agrawal in Entrepreneur. Therefore, business plans must outline an exit strategy for potential investors.

There are several exit strategy scenarios here: you and your investors may sell the business jointly if it’s sold to another business. But if you want to retain ownership of the company you need to think about potential buyers of your company, list competitors or similar startups who’ve successfully exited and provide a projected valuation of your company at the time of exit.

4. A clear strategy for how you’ll use investment funds

Once entrepreneurs have decided what they need from investors, they need to develop a clear strategy for:

• How much money they’ll need as an investment
• How they’ll use that money to grow the business
• Financial projections including an income statement, a balance sheet, a cash flow statement, milestones, return on investment expectations, and return on investment calculations.

5. An expert, competent team

Venture capitalists are interested in quality, not quantity when it comes to a startup’s staff. A startup’s team needs experts from the field in which the company operates, and not just business experts. That’s particularly pertinent for tech companies: nobody’s going to invest in a blockchain technology product if there are no blockchain professionals in the team, for example.

“The goal is to persuade investors that you have the workforce necessary to turn your ideas into reality and promote your business's financial or developmental growth. To assure the investor of your abilities, each team member should be a crucial contributor to the development potential of your company,” says Vikal Agrawal.

6. An inside out knowledge of customers’ wants and needs

All investors need confirmation that a business owner has immersed themselves in the market to the extent of looking not just at the top-level market but also drilling down to individual customer personas. Being able to point to specific customers who love your product can give investors confidence that an entrepreneur has found a good product-market fit.

Interviewed by Forbes, Elizabeth Yin, General Partner at Hustle Fund, explains: “The pitch definitely needs to reflect that research, customer development and thought to the extent that people can describe their customer persona in detail. I think the more that you can articulate that the better because it really shows that you really understand who you're selling to, why they buy, why there's even an opportunity there. “

Tips for pitching success

Here are some ways for entrepreneurs to maximise their chances of getting that essential bank loan, business loan or investment for their startup company, according to business experts.

Perfect your pitch deck

Investors spent 24% less time looking at pitch decks for startups in 2022, compared to 2021, according to a Techcrunch analysis. On average, entrepreneurs had just under three minutes to convince venture capitalists to take a meeting with them, and investors had given up on decks that failed to raise funding in just over two minutes. With so little time to make a good first impression, every slide and every second counts.

Seek out mentorship

Finding a qualified mentor with a background in your industry and whose goals are aligned with your own should be a top priority for anyone launching a new small business. Startup mentors are seasoned professionals who can offer guidance, insight, and a strong network to first-time entrepreneurs. They will have successfully navigated the complex world of business and entrepreneurship before and will have a strong track record in your industry. They can help you avoid common pitfalls and make sound decisions, introduce you to potential investors, clients or new partnerships and help with building relationships in your field. What’s more, as they’ve been there, done that and seen it all before, they can provide emotional support, encouragement and motivation when times are tough. According to Reyna Hurand from Startup Savant, some ways to find mentors include:

• Industry events
• Accelerators or incubators, many of which have in-house mentors
• Co-working spaces, particularly those targeted at startups
• Local startup events such as demo days or pitches, where you can introduce yourself to experienced attendees.
• Online platforms for connecting founders with mentors, such as GrowthMentor which connects entrepreneurs and marketers with vetted growth mentors via a membership programme.

Securing funding need not be as difficult as it might first appear. Vikas Agrawal has these final words of advice:

"Capturing an investor's attention with your business plan will be simple if you are a driven entrepreneur with a vested interest in the outcome and can show considerable growth potential. But remember that the best way to create a strategy for seeking funding from an investor is to consider things from their point of view.

It won't be tough to win over potential startup investors if you learn to think like them. Finding the proper investor who will invest the appropriate sum of money under reasonable conditions will need some homework. But if you have faith in what you're doing, keep working hard until you find what you are looking for, even if it takes some time.”

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