What should you do if you can’t raise startup capital?
Raising startup capital can be crucial if your business requires a certain critical mass to survive. Unfortunately, more companies fail to raise capital than those who successfully do. The good news is that there are a million ways to raise money and you only need one of them to work. Today, we’re going to talk about what to do if you’re having trouble raising startup capital.
We first need to address the fact that most people go out looking for funding far too early. If you’re serious about raising money and don’t have a successful acquisition under your belt, then there are a few things you need to accomplish before you ever reach out to investors. For starters, you at least need some sort of initial version of your product/service and ideally a concrete proof of concept. Your proof of concept doesn’t need to be a million people using your product but it does need to be some people using your product, giving you regular feedback. This shows investors that there’s actual demand for what you’re offering.
1. Stay close to home: One thing we see all the time is hopeful entrepreneurs never actually tapping the full potential of their network. Most people don’t realize it but they almost invariably have a group of people around them who want to back their ideas and believe in them. If your family and friends aren’t willing to invest in your idea, why would a professional investor? Jeff Bezos’ parents mortgaged their home and invested over $200,000 into Amazon while it was still nothing but a pipedream. If you haven’t already tapped your network and asked your friends and “friends of friends” then it’s too early to be going to investors. Also, if you haven’t gone to your family then it’s definitely too early to be going to investors. Keep in mind you don’t have to ask for a lot of money but, in most cases, you can get enough to at least show proof of concept.
2. Get creative: If your friends and family have already helped you and you still can’t get investors behind you then now it’s time to get creative. What do we mean by getting creative? Well, let’s look at a great example. Back around the 2008 presidential election, Airbnb was nothing more than a fledgling startup that was struggling to stay alive. The founders had already raised money from their family and racked up thousands of dollars of credit card debt in order to get their proof-of-concept off the ground. Even after doing all of that, they weren’t able to raise money from professional investors. So what did they do? With the election right around the corner, the founders thought fast and devised a money-making strategy completely unrelated to Airbnb’s business. Brian Chesky and his co-founders created special label cereal called “Obama O’s” and “Cap’n McCain’s” and sold nearly $30,000 worth around the time of the election. They used this money to keep Airbnb alive until they could convince investors to join.
3. Crowdfunding: Speaking of getting creative, crowdfunding is one of the most creative things you can do. Up until the last 10 to 20 years, if you had a great idea you had to go through industry gatekeepers to get your idea funded. The advent of the internet changes all that. Never before in human history have normal people been able to get their message out to millions, without spending much money. Crowdfunding isn’t just for small projects anymore either. Over the last 10 years, crowdfunding has helped raise billions of dollars for promising startups and business ideas. If you thought your company wasn’t a good idea for crowdfunding you might want to reconsider. This can be the basis for a multi-billion dollar company. Sites like IndieGoGo, Kickstarter, and many others now make it ridiculously easy to set up a campaign. Even if you don’t hit your target, it’s worth a shot.
4. Persevere: The next thing you may want to consider is that you just haven’t tried enough times yet. There are countless stories of brilliant entrepreneurs who had to try many more times than they thought to get their idea across. For example, Tim Ferriss was turned down by 26 publishers before one picked up his book The Four Hour Work Week, which went on to be a global phenomenon. How could so many publishers miss out on a homerun opportunity? It’s hard to know, but the one thing that’s for sure is that if Tim would have given up on his twenty-fifth publisher no one would probably know who he is. How many pitches have you made? Probably not enough. Even if you pitched a hundred investors, the hundred and first might say yes. So our advice is to simply persevere and never give up.
5. Ask for feedback: This is one tactic we can promise you not many entrepreneurs use. After every single investment decision, you get you to need to be asking investors, “Why did you say no? What can we do to improve?” These two questions can unlock the sea of doubts that investors are thinking about when they’re reviewing your opportunity. Once you’re able to understand why they’re saying no, you can go back, adjust your messaging, and then knock the next pitch out of the park. While it might seem obvious, most entrepreneurs don’t do this. They make the same pitch over and over hoping one investor will just say yes. However, if you improve after every single pitch, you’ll eventually land in a meeting where everything goes perfectly, you address every concern, and investors are nipping at your heels to get involved.
6. Know when to quit: Last but not least, unless you want to spend the rest of your life pursuing this idea, have the courage to know when to call it quits. This doesn’t mean you’re giving up on your entrepreneurial aspirations, it simply means that this idea, at this particular time, isn’t going to work out. If you can make that distinction and then act quickly on it you could save yourself years of pointless work and move on to your next venture. Don’t get this confused with someone who simply jumps from idea to idea but understands that if two-hundred investors have told you “No,” even after improving your pitch every time, then there might be a fundamental flaw in your plan. Chalk it up as a learning experience and move on to the next. Your odds of success will be dramatically higher, after all, you’ve learned.
Do you have one more pitch in you?
At the Tandon Group, we’ve invested in dozens of successful companies in the consumer, defense, wireless, and IT industries. We’re always looking for the next big opportunity and can especially help emerging startups expand into the Indian marketplace. With offices in Silicon Valley and multiple offices across India, we’re truly a global investment partner. If you think you have what it takes to be the next big success, reach out to us. We’d love to be your partner for the road ahead.