So You're a Startup: How to Raise Funds
So You’re A Startup continues! Every week, we’re addressing some of the most common startup questions. We’ve covered pitching, interviewing & networking. This week, we’re all about the money.
As a startup, the only thing that will stop you from pursuing your genius idea (other than dying) is running out of money. And this might not even be a problem for you if you have no money in the first place.
Which leads to the question…
Where do you get money to fund your startup?
In order to get funded by an angel investor or a venture capitalist (VC), you’re going to need a good idea, great execution of that idea, and customers – all of which is tangible traction. If you’re not quite there yet but you still need some money to get going, here are some options:
1. Your family & friends
When your company has no monetary value, you’re going to have a hard time getting money from people who don’t love you. So go ask your family and friends. Do it right now. They love you, they believe in you (maybe more than anyone else will) and combined, they could potentially have enough money to start you off. What else is Auntie Sue going to do with her $10,000 Bingo winnings?
Consider the Ted Livingston story – without the $25,000 left to him by his grandfather, who knows if Ted would have been able to get Kik Interactive going. Ask people who love you unconditionally for money, they are more likely to say yes than a stranger.
2. Build a minimum viable product (MVP)
While you’re checking the couch cushions at your mom’s house for spare change, you should also be building something that you can show people. Use your MVP to generate some sort of user base or revenue – this is the social proof you’ll need to get attention from investors. Creating an MVP helps validate your business to the people who know nothing about it. When you get users, you prove that there is a need and that funding your idea is worthwhile.
So you’ve done these things and you’re ready to talk to the guys with the big bucks. Now what?
If you want to get the attention of a serious investor just by having users, you’re going to need around $1,000,000. If you want to use your revenue to get that attention, you should work on having an annual run rate of $100,000 (meaning your company earns around $8,000 every month).
Until you hit these metrics, raising capital is going to require a track record; investors like people who have done it all before – entrepreneurs who have sold a company or made something successful in the past.
What if you don’t think you can do any of the above?
Lucky for you, if you live in Ontario and are a university grad, there are a lot of government programs that seem to really want to fund you. You can get loans and grants from the Canadian Youth Business Foundation (CYBF) and from the Ontario Centres of Excellence (OCE). If government funding seems right for your startup, MaRS has some great resources listed.
Above and beyond all of this, there are a whole lot of business and startup competitions you can enter – you just have to find them. They look for everything, ranging from health startups to tech entrepreneurs. Be prepared to write a whole lot of applications though, sometimes a competition will advertise a $20,000 prize when in reality, that prize is up to $20,000 – meaning you only end up getting 7k. One of the many competitions you can apply to (other than the VeloCity Venture Fund), Start Me Up, is actually coming up soon, so if you need money, like, yesterday, apply by March 31.
If your idea is extremely compelling and unique, the next Google/Facebook/Twitter – disregard all of this. Maybe Investor X will come by and shove $2 million in your pocket tomorrow.
Thanks to @bashome for sharing the cold hard truth about raising cold hard cash!
Have anything to add? How are you raising money for your startup? Comment below!
And stay tuned for next week’s So You’re A Startup – we’re going to get down to the details of writing a one pager.
