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Now Reading How Fundraising Works

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How Fundraising Works

by Startups Team

Fundraising is incredibly easy. You just call a few investors, tell them how great your idea is, and they write you a check. If your idea is really good, they don’t even ask for equity. They’re just so excited to be a part of your company they can’t wait to give you money.

OK, that’s not true at all.

Companies that successfully raise capital do so because they convince others that their idea is going to be a winner.

The truth is that fundraising is hard. Most people try and fail, no matter how great their preparation, their perseverance, or their idea. That’s because there are far more people looking for capital than there are people writing checks, and therefore an entrepreneur needs to do everything possible to ensure they can successfully fundraise.

So with that disclaimer, let’s get to it.

The Short Version

The fastest way to explain the fundraising process is this:

1. Get your company started and build some traction to make your deal look interesting.

2. Find the capital sources that actually make the most amount of sense for your business right now. (Hint: it’s not always a traditional investor.)

3. Develop an amazing presentation that blows investors away with your idea, team, traction and preparation.

Companies that successfully raise capital do so because they convince others that their idea is going to be a winner. They do that by demonstrating traction to the right capital sources and proving they have what it takes to actually make a great company.

The Longer Version

Our goal is to make this process a little easier by walking you through the fundamentals, setting your expectations, and identifying what preparation you’ll need to do in order to be successful.

1. Prep

Before you begin raising capital, or even thinking about it, the first step is to get your company started. You’ll need to get incorporated, get a tax ID, setup a basic online presence, develop some collateral materials like a logo and brand items to look like a real company, and begin putting together your business plan.

Once that’s done, you’re ready to start getting “traction” in your business. Traction is simply forward progress on all fronts – finding potential customers, generating PR, recruiting key employees, and building an early prototype of your product. These are all the basic elements to show that you are actuallystarting a company, not just thinking about one.

2. Match

Once you’re up and running, then it’s time to start looking at capital options. There are lots of ways to fund a new company, including bootstrap capital (personal credit, savings, friends & family), debt (business loans, AR financing), and of course equity (angel investors, venture capitalists).

We’ll take a look at all these options so you can decide not only which you would prefer, but which you’re most likely to be eligible for.

3. Pitch

Now that you’ve figured out which capital sources make sense for your business, the last step is to begin your pitch process. At this point you’ll need to put together each of your key pitch assets: your elevator pitch, pitch deck and business plan.

With these items in hand, you’ll begin to systematically reach out to and pitch each capital source you’ve identified.

Summary

The fundraising process can be broken down into three main steps; prep, match, and pitch. It is important to complete all of the steps if you are serious about raising capital.

The prep stage is where you create the foundation for your company and generate traction. The match stage is where you identify the best type of capital for your situation. The pitch stage is where you present your opportunity to Investors.