A startup generally has excellent ideas and enthusiasm but lacks the most essential thing required to take a business to great heights, that is, funds. The common reason for investors to reject startups is that they lack traction or growth. Since traction and funds are so dependent on each other, the startup ends up in a chicken and egg story. No money, no growth. No growth, no money. This could take the startup down the road. However, there is hope for startups to raise funds in the initial phase.
The startups can generate funds through the following ways:
- Concentrate on the Total Addressable Market (TAM)
Entrepreneurs with no traction have to sell a story that focuses on TAM. TAM can be defined as the total revenue opportunity available to your company and/or product in the market today. The entrepreneurs must make the investors believe that the TAM is so attractive and ripe for distribution. This gives investors the confidence that the entrepreneur can create a highly scalable business. Where the TAM is sizable, the startup must concentrate on its sub-vertical or sub-category.
- Use the power of Storytelling
The other tactic for entrepreneurs is to make the investors believe in the potential of their startups by weaving a story around the origin and the ultimate destination of the startup. It is human nature to be hopeful and focused on the power and possibilities of great stories. This especially helps startups without traction as the story is the only thing left to focus on. Investor’s imagination about the potential for growth can sometimes seem limitless. The story should emphasize how the business idea solves an acute problem or how limitless is the potential of the business idea.
- Bring in Comparisons
The other important tool in the entrepreneurial “pitch arsenal” is drawing analogies. Entrepreneurs can draw analogies between their startups and previously successful businesses. If the entrepreneurs do not have the metrics to raise at the early stage, they can bring to the investors notice the market conditions, customer dynamics, and potential for growth of similar businesses that are successful. The analogy drawn must be as close to the startup as possible, like the similar geographical market, etc.
There are more unconventional methods that can help entrepreneurs get the funds even when they do not have traction. They are as follows:
- Partnerships with the companies that cater to similar industry
If the startup is in the field of online education, it can partner with universities, vocational centers and skill development organisations. This will give the startup visibility and, eventually, the much-needed investment.
- Influencer marketing
Today’s growth is about visibility, and hence the entrepreneurs can have the who’s who of the related industries talk about their product or services. This is primarily like testimonials but on a large scale, with millions of followers learning about the product or services on social media.
Entrepreneurs must come out of the “Catch 22” situation by using the above techniques, as staying too long in the situation can be fatal for the business and can mean a crash of a great business idea.
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