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The Basics of Raising Capital for a Startup

Updated on: Jul 13th, 2021


5 min read

A startup generally has innovative ideas but lacks the vital element required for survival and growth – Money. The road ahead for a startup might end up in a dead-end if the requisite capital is not available. Hence a startup must weigh all the options and design a plan to define the sources and approach.

The basic understanding needs to be done to go from where you are to where you want to be and how to achieve it. This will result in lesser chances of derailing from the path. These are the basics of raising capital. The following are the steps needed:

Getting Ready for the Path Ahead

The first step to raising capital is recognizing the need for finding the funds. If this step is ignored, the founders will end up investing their own resources into the business. This first step is time and effort-intensive, but it will simplify the choices in the future.

This step involves researching the industry the startup operates in, assessing the competitors and the market, and evaluating the team’s health and performance. It also involves defining the products, preparing the financial projections and deciding the mode of funding, that is, debt or equity.

This step is important as when the startup approaches the investors, there will be some tough questions that the founders must answer. The groundwork helps them prepare for these questions and justify the choices made.

When it comes to financial decisions, there must always be a Plan B. The groundwork helps the startup identify the funds required and sources for the same. But the actual raising of capital will not be as desired, and hence a Plan B must be devised.
The following are the different types of investors:

  • Founders
  • Family
  • Friends
  • Venture Capitalists
  • Angel Investors
  • Single-Family Offices
  • Business Incubators
  • Investment Groups
  • Crowdfunding Pledgers

Preparing the Pitch Deck

The Pitch Deck is a visual representation of the business idea, the prospects, and why the investors must invest in the startup. Enough emphasis cannot be laid on this, and hence the startup must have a pitch deck of around 15 slides. These slides must contain information about the company, the team, competition, target market, milestones, future plans, and the funding requirements. This will give the investors a good number of reasons to invest in the business.

Networking and Seeking the Potential Investors

This step is where the startup connects and finds people who will be interested in the business. The purpose of networking is not always to find investors; it is about helping one and another and creating good business ethics. The startup must find the right investors as all the prospects might not be ready for investment, some might not be ready for the amount, and yet some might not identify with the business idea. This step involves reaching out and letting others aware of your requirements.

Capitalize on the Idea of Niche Industry Funding

If the startup is in healthcare or e-commerce, then the startup can find investors looking for such business models to invest in. This will be one of the many options, but it will give the startup some leverage.
The confidence that comes with the capital being infused in the startup is undeniable. The path is not simple, yet it gives startups the much-needed cushion from the uncertainties of the business.

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

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Quick Summary

Startups need capital for growth and innovative ideas must be well-prepared to approach investors. It is crucial to create a solid plan, network with potential investors, and consider niche funding opportunities. The process involves thorough research, preparing a pitch deck, and being ready to answer tough questions. Having a Plan B is important in case the initial capital raising doesn't go as planned.

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