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How to Raise Capital for Your Startup Business
It’s no secret that launching a startup company takes bold vision, meticulous planning, and at the end of the day, a lot of guts. It also requires seed capital, which can be hard to come by, early on. But fortunately for you, we’ve got some helpful ideas for successfully seeking startup funding by carefully courting venture capital firms.
How to Get Funding for Your Startup
Finding money for your startup business is challenging, but there are different ways you can get the funding you need. Popular types of funding for startups are:
- Getting a bank loan or line of credit
- Borrowing money from friends or family
- Applying for small business grants
- Joining a startup accelerator or incubator
- Raising money using crowdfunding platforms
Another viable option is seeking help from venture capitalists. These are professional investors who provide capital to small businesses or startups they find promising. Venture capital financing can be difficult to get, but knowing how to market yourself to venture capitalists can make a big difference in securing the seed funding you need to get your startup company up and running.
Venture Capital Funding for Your Startup: An Interview with Dan Reed
To learn about how startup businesses can get venture capital funding, we talked to Dan Reed, managing director of American Family Ventures — American Family Insurance’s venture capital arm based in Madison, Wi. As a former entrepreneur himself, Reed shares his real-world insights on what to do, and what not to do, when you’re seeking funding to fuel your startup dreams:
What are the most influential factors that convince you to fund startups?
Reed: It’s got to be relevant to where the industry is headed. For example, at American Family Ventures, we support early stage, innovative, data-driven companies that create digital connections to enhance everyday safety and quality of life – which is crucial to the future state of the insurance industry. Also, the startup has to demonstrate its team has the right expertise, strategic thinking, cohesiveness and tech-savvy abilities to execute their plan over the next 10 years or more.
And, you’ve got to show that it’s needed, it’s real, and you’ve got to offer proof that it’ll succeed in the marketplace. Data or metrics proving actual market demand can really make a difference when it comes to convincing investors.
Is it a challenge to get metrics demonstrating demand, especially if it’s a new product concept?
Reed: It may not be as hard as you think. You can get basic metrics measuring demand with Google’s AdWords research tool, simply by determining how many people are searching for your product or related concepts. I know of people who run Google ads and get people to sign up to be on a waiting list for their future products.
Some may use email surveys to demonstrate the need or demand for their product concept. When startups show evidence like this, it strengthens their case for receiving funding, and helps reduce the sense of risk that a venture capital firm or accelerator might have.
What should startups avoid doing when seeking funding?
Reed: Startups often forget they’re talking to people during their funding pitch. They’ll take a few minutes to make introductions and break the ice, and then they’ll launch into a 20-minute presentation without any breaks or input from anyone on our team.
It’s easy to understand their passion, but they get so wrapped up in their story that they forget they’re trying to build a partnership with us. It’s got to be a dialogue, not a monologue.
Having been a successful entrepreneur yourself, what lessons would you share with others?
Reed: You need to navigate that fine line between hitting milestones and sustaining the business while going after big opportunities to justify additional capital. Startups often focus too much on tightly managing risk. They also need to keep swinging for the fences — such as scaling to bigger markets or capitalizing on disruptive technologies.
Another factor to consider is that if you’re launching a startup with friends, it could turn your friendship into more of a business relationship. It can be a good thing, too, but it’s something to be aware of. It helps if everyone is transparent, understands their roles, and respects each other’s expertise and contributions.
And finally, bringing a startup from concept to market is a marathon, not a sprint or even a series of sprints. While you might initially envision getting everything off the ground in a year or so, it could take a lot longer than you think. As the saying goes, ‘Overnight success takes 10 years.’
Want more insights on funding your startup? Check out our interview with Michael Seibel, a partner at Y Combinator, a Silicon Valley incubator that funds early-stage ventures.