Today, we’ll talk about should you raise funding and if so, how much should you seek.
– Funding accelerates what you already have going in your business today. You should have a core process for acquiring customers and providing a service. If you don’t have it then funding at this stage will only hurt your business. It’s best to continue testing your core business model till you know it works. It’s important to find the best channel for acquiring customers and at the most efficient cost. By stating your core business in numbers, you now know what it costs to grow your business.
– What is the best source of funding for your business?
In addition to equity funding, you may consider debt financing, self-funding, or bootstrapping. Debt financing requires you to pay back the loan but after you do so, you own the business outright. You could self-finance, which means you put in your own money, or you could bootstrap it, which is another way of saying ‘find a customer who will pay for your product/service’. I call this customer funding. For this you may need to offer additional services at a higher price to cover the startup costs but is a great way to grow your business as it keeps you focused on your product and customer.
So, if you decide to raise equity funding, how much should you raise?
– Raise enough so that it will take your business to the next level. Think about the position you need to achieve in order to raise the next round of funding. Your fundraise should take you there and set you up for the next raise. Your valuation in any startup is low at the beginning. Raising too much money at a low valuation will end up giving away too much equity. For those with larger fund raises you may want to break it down into several milestone steps in which case you can raise your valuation for each step as you achieve more revenue.
Thank you for joining us for the Startup Espresso.
Let’s go startup something today!
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NOTE: Investor Connect is a program under the Texas Open Angel Network which is a 501(c3) non-profit dedicated to the education around startup funding. Hall Martin is the principal contact, and may be reached at http://www.investorconnect.org/contact.
Hall T. Martin is the Director of Investor Connect which is 501c3 non-profit dedicated to the education of investors for early stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.