How to raise funds as a startup

The best surfers in the world will tell you that to be incredible, you have to wait for the right wave. Each wave you choose to paddle takes an incredible amount of energy, time and mental focus. If you’re able to channel all your skill and stamina into that one beautiful wave, you’ll be more successful than trying to ride 50 bad ones.

As a new founder, you don’t have the resources to catch every wave — and it’s not wise to do so. You must be calculated and strategic so that you maximize your chances of making it.

Traditional bank route

For startups considering going the bank route, this might not be your wave. With interest rates nearly doubling from last year, Free money No longer an option. Most startups don’t have the luxury of deep pockets to begin with, making traditional financing impractical. One of the few exceptions is for minority-owned businesses or group members with historical constraints on capital; In these cases, SBA Loans still is worth considering Because of their adjusted terms.

If you are not eligible SBA And the bank route is your only option, here’s a word of caution: wait until rates stabilize. As with any market volatility, the next twelve months will tell the country’s financial future.

For those unwilling to wait out the storm, think about basic math: If your company is running on 50% gross profit and 30% net profit, don’t make the mistake of assuming that a 4% increase in sales equals 4% in interest on your loan. Increase. He won’t. You need to increase yourself profit By 4% – you need to increase yours sale by 12-15%. If you choose to lock yourself into it High interest loansBe prepared with a solid money strategy and a solid rationale that justifies giving away that much money.

Another option worth considering is a line of credit. They are easier to manage and you can see your borrowing total shrink just like a checking account. At any given time, entrepreneurs are using thousands of different things to make their business a success, so do whatever you can to simplify finances.

Related: 4 ways to deal with high interest rates in every part of your business

VC route

When a bank wants to know your assets before writing you a cheque, VC should be approached differently. Your asset is your three-year business plan and it had better be solid. As an investor, I look for founders who are willing to eat, sleep, drink and marry their business — And I want to make sure I know everything about you in the first three minutes we’re talking. It sounds like a lot of pressure, and it is – that’s why starting a successful business from the ground up is.

As a VC, I am looking for a founder who knows the market, their product, How much money do they need? And what they will spend on it. The formula may come later, but if you can’t convince me that you’re off on your idea, and that you’ve done your homework, it’s a waste of both of our time. The first red flag is when entrepreneurs aren’t willing to commit all of their time and money to their own endeavors. If you’re hoping to keep another job or want a VC to invest money in a plan that you’re not willing to invest in yourself, you’ve got the wrong approach.

When you approach a VC, ask for more than you need. The guy who comes to me and tells me he needs $300k but wants $500k is the guy I want to talk to. At the end of the year, entrepreneurs often find themselves back at the VC’s door asking for more money because they failed to plan how much they’ll actually need. Asking for the wrong amount the first time is a mistake and that second investment will cost you significantly more.

Related: 3 ways to raise capital and take your business to the next level

Alternative options

A number of micro-funding organizations have popped up over the past few years. These non-bank lenders are gaining popularity, offering microloans for anything Under $50,000 With a streamlined credit process. Unlike traditional loans, these microloans are designed to give small business owners a leg up without going into debt, making them a smart option for entrepreneurs who only need a small amount of money to start their businesses.

Related: What is the federal funds rate and how does it affect loan rates?

Preparation is your greatest asset

to protect Funding for your business, the first step is not to ask for money; You have to decide exactly how much you will need. I always encourage entrepreneurs to create an expense budget that includes all their bills for the year. Whatever budget you come up with, increase that amount by 15% because you’ll need the cushion. Whatever you forecast in revenue, deduct 15% because you likely won’t hit your revenue targets. Within that final number lies the truth of how much credit you need.

This is not pessimistic; That’s just the way it works — you figure out what’s reasonable, and then you add safety nets for everything unexpected. We overestimate our ability to create something quickly without any hiccups. By accounting for these contingencies before they arise, you can better prepare to deal with them when they inevitably appear.

Plan your move wisely

Where and how you choose to get funding can make or break your business. Take a breath, look for advice and try Make smart financial decisions. If the timing doesn’t feel right, trust your gut; No one can steal your idea overnight, so it’s okay to wait. As you consider your options, look at the bigger picture such as economic stability, interest rates and future implications before making your move. After all, it may be the only move you have.