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Bootstrapping is hard. Investor funds, if done incorrectly, can become a ticking time bomb. So, which direction is best?
Often, businesses start with fully funded founders. Only a handful of startups are funded in the idea stage. Things can get tough along the way, and often, you’ll need to choose whether to keep scratching to stay afloat or get external funding.
It’s a tough decision to make. On the one hand, founders want to retain significant control over their projects. They also don’t want investors’ money to be handled that way. On the other hand, startups need money to survive and grow to their potential. Harvard professor Noam Wasserman calls this “Founder’s dilemma“
As a founder, you need to know when the time is right to seek and collect investors’ money. This article answers that question.
Related: 8 Things to Consider to Find the Right Funding Option for Your Startup
1. Figure out the working model first
It may interest you to know that investors are always ready to sign the check whether the idea seems viable or not. However, investors can put you on a very short leash when they know your idea isn’t viable enough. They do this by requesting ridiculously high equity.
As an alternative, you need to do all your initial experiments and find a specific business model that works for you first. Communication with investors. It’s no news to founders, however, that finding a working model is no walk in the park, and those experiments often require quite a bit of capital.
In the early stages, you need to self-fund your idea while taking it through refinement. With insufficient capital, you should consider reaching out to family and friends for support. They are bound to trust you more than total strangers with a fat check. Approximately 40% of founders Follow this path.
2. Create an MVP
It’s rare for founders to focus entirely on one aspect of a startup. Often, they have to oversee business development, product development, finance, and every part of the project simultaneously.
While figuring out which variation of the business model works best, founders also need to ensure that product development works successfully. Until then, it is best to stay away from outside investors.
However, some products are capital-intensive and will require larger checks to fund them. In such cases, it is advisable for the founder Create a prototype or a highly specialized graphical rendering of a product.
This provides a crystal clear description of how the product works and provides some level of confidence to outside investors. With a prototype, your chances of landing an outside investor under favorable terms Increase significantly
Related: Mistakes to avoid when looking for funding
3. Make sure it’s time to scale your idea
You may have MVP And a model that works on paper, but all that doesn’t matter until you get some real customers who are willing to pay for your product. By “real customers”, I’m not referring to family relatives and friends.
If you have a few complete strangers paying to use your product, you most likely have a viable model and a valuable product. At this stage, you need to make sure that your business process is well documented and can be recreated without smack-dab oversight.
With all that, you can get funding from outside investors to hire more hands to regroup the process.
I often advise founders to look beyond securing investor funding. Founding a startup is a phase of your career and the way you approach it Outside investments It can have a significant impact on your reputation in the long run.
Investors prefer to put their money in founders who have proven records of good investor relations and business success. So, if you want to secure your first-funding round, make sure to do it at the right time to avoid jeopardizing your entrepreneurial career.
Related: How to know if you need funding (and how to get it)