Introduction

Source: https://startuptalky.com/raising-funds-startup/

Hi friends, I am back with my start -up series part-iii. 

Hope you all enjoyed my previous two parts about start-up, stages of start-up, funding options in India and funding series.

I am giving more emphasis on start-up with part by part as now it is the right time if you wish to become your own boss.

What you need to have is a clear vision, a viable business plan, unique product/service and an initial investment.

In this blog, we will see what are the factors that have to be considered by both the entrepreneurs and the investors before funding the process.

Start-up

In simple terms, start-up is an initial phase of business founded by one or more entrepreneurs having a unique and innovative business model for a particular product or service that has significant demand in the market. 

Example: Amazon, Uber, Biju’s

To read more about start-up and its features please check on https://layersofmanagement.com/2022/01/21/a-basic-guide-on-evolution-of-start-up-in-india/

There are mainly two parties involved during the funding process;

1. Individuals/Entrepreneurs who want to raise funds as their business grows increasingly at a mature level.

2. Potential Investors who wish to support the start-up by aiming at getting back something in return. Generally, the investors fund the start-ups in exchange for a substantial equity stake in return.

To read more about the funding options and start-up funding process in India please check on https://layersofmanagement.com/2022/01/25/a-study-on-evolution-of-start-up-in-india-part-ii/

Factors considered by the entrepreneurs before raising funds for the start-up

1. Type of business

The entrepreneurs must have a complete knowledge about;

• The market he is going to enter, whether the product or service will be a viable one and the competitive advantage over similar products in the market.
• The estimated and actual funds to be raised.
• Analyze and compare the funding options to know which will be suitable for your start-up based on the initial capital investment and probable costs likely to occur when expanding.

2. Know your investors

You must always do research about the investors (Angel, venture Capitalists) before signing a deal with them.

• Their previous records of investments done in various portfolios and returns on the same
• Their ability to assess the growth and risk factors of the start-ups
• Make sure you and investors agree on mutual terms and outline the terms and conditions of the investment. This helps in an easy funding process.

3. Team organization

A well organized and diversified start-up team always has a potential edge over others who fail to form proper team strategy.

A team must be formed on the basis of each person’s strength and efficacy to win in the long run.

4. Right decision

Failure is always a stepping stone for success. When you do business model, make sure you rectify the mistakes and then launch the product/service in the market with the help of internal and external funding options.

Instead of dwelling on the mistakes, own it and revise the plan accordingly based on

• Why did the failure happen? 
• Is there any misinterpretation of facts or methodologies?
• Was there any gap in assessing the funding options, if so, what is that?

Making the right decision at the right time is more important in a start-up as “Time and tide wait for none”.

5. Exit strategy

Always you must have an outlook of where your company stands in the future. 

Do a detailed planning to your projections by giving importance to microfinance and micro and macroeconomics factors.

Do a realistic approach with a balanced mind by analysing and forecasting the option of IPO within three years to potential strategic partners. 

In this way, you can frame a proper exit strategy.

Factors considered by Investors before approving funds

1. Solid Management team

The main important factor for a investor is a solid management team who have a proper and clear business plan which includes:

• Why is that market your target with the relevant data?
• Data-based financial projections
• Sales channels and Marketing plans
• Competitive advantage for your product or service
• Projected timeline for when you’ll start making money
• Potential obstacles and your plans for dealing with them

An investor will always look for a passionate team of entrepreneurs driven towards their growth of start-up and can deliver the result what has been promised.

2. Market size & overall market

Investors always look for niche markets and into widespread marketability. The main questions they look into in a start-up are;

• Is your company’s product or service marketable to the group of your targeted audience?
• The expandability or forecast about the market expansion and how viable is it?
• Is there an opportunity for related products and services?

Always ensure that the start-up you are investing in is a watchful entity capitalizing on a series of good ideas.

3. Traction

An investor most of the time, looks for a new venture who proves to them that it has a marketable product or service, that is, they have begun operations and have significant ability to sell the product or service.

In simple terms, the venture must have a “proof of concept” to show investors.

4. Strong and clear vision

Before investing in any project, any investor first looks at the strong and clear vision of owners behind the start-up and how they have evolved along with the passion of start-up. 

They would like to know that the investment they make is something worth their time, effort and money. 

5. Monetization strategy and initial investment

Investors generally value the proposition of the initial fund invested by the owner. This adds credibility to their start-up. 

The investor must also expect from them a detailed financial plan with data and facts about how they are planning to raise the funds, expected returns, the risk involved and proper exit strategy.

Conclusion

It is important for entrepreneurs to understand that the factors investors are looking for in a start-up aren’t that complicated. Investors always want to gain maximum with minimum risk involved for which you have to prove to them your credibility as an individual entrepreneur and also as a team in the desired market. 

Next week we will see the final part of the start-up series of what a unicorn is? and how the economy has really grown with the help of start-ups in a decade’s time.

Thank you guys