6 Questions for Start-Ups Wanting to Raise Capital
Nowadays, fundraising is harder than ever for start-ups. Many companies rush into attempting to raise capital without knowing enough. It is arguably the biggest obstacle business owners face when converting their ideas into reality.
Often, we are working with business owners on a succession or exit plan. Part of that strategy is to grow through acquisitions and sometimes that includes raising capital.
Fundraising for mature, well-managed and profitable businesses is a vastly different prospect (and much easier) than raising funds for a start-up. While start-ups and innovation should always be encouraged and supported with funding wherever possible, it is important to maintain a realistic perspective and so, start-up business owners need to ask themselves these six key questions:
1. What problem are we solving?
2. Who are we solving it for, and how many potential customers does this include?
3. What will they pay for the solution? – what is the problem costing them now?
4. How else is the problem being solved and why is my solution any better/quicker/cheaper/more effective?
5. How do I plan to let my potential customers (the people with the problem) know that I have a viable solution and convince them to pay for it? And most importantly,
6. Why do I need this money and how might we use it to grow the business?
Many conversations we have with start-ups don’t include any of these, but are some blue sky model which often involves a fantastically profitable spreadsheet. Skip that; create a short, sharp document that outlines the 6 key points above and your chances of successfully raising capital will greatly increase.
Here’s 10 terms you need to know before raising capital for your start-up.