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Summary
In this article, we will cover a few options for entrepreneurs seeking startup funding. As a marketing firm specializing in start-ups, we have researched various ways companies can get startup funding. Please read the entire article to better help you understand the best path forward for your start-up - unless, y’know, you don’t care about succeeding. You do you..
Startups! You know, that thing your uncle brings up every Thanksgiving after a few beers despite having no idea what he’s talking about. No, Tony, we don’t know what an electric quantum rain modulator is, and we don’t think you do, either. About 90% of all startups fail, probably because most people who attempt to create one are like Tony - high-minded and ambitious, but are attempting to tap into a world that they have virtually no claim to.
The best path forward for your new product or service may well be your family, and I'm not talking about groveling to grandma or your D&D buddies for a handout. I'm talking about preparing a solid game plan for how you will develop and market this idea (preparing a pitch deck).
If you're not confident enough in your product to ask for an investment from your peers, you may want to continue developing your idea before moving forward or plan a potential pivot. What’s that? You don’t have any friends or family? No worries!
Loans For Startup Funding
Now that we've established you're an introverted orphan, let's look at our next option: loans. Loans are my least favorite option for start-ups as they require interest payments even when the idea doesn't generate income.
Either way, research your loans, and don't get caught in a high-interest loan - you'll end up with no house, no friends, no family, and will be in massive debt with no company to boot.
...cool story, bro. Now before you learn to ball (or bawl), you need to crawl. You're starting a small business. Sorry to burst your bubble! There's nothing wrong with starting out small and taking advantage of your resources. Growth will come with time. Now lets talk about how to get free government money to start a small business.
Startup Funding Grant Resources
You can find more information on grants through a cursory Google search. Another great option is looking at the USA.gov grants program. Don't forget, when writing a proposal for a grant, it might be worth hiring a grant writer to dot the t's and cross your eyes (I got that right… right?).
Private Investors
Remember Bruce from the orphanage? The one with the fancy bat suit and the mansion? He's doing great these days and loves to invest in people just like you, especially if you want to fight crime!
Beetlejuice was the best Batman and you know it!
You can find private investors all around you. Old bosses, business connections, hell, even Craigslist works! There are people out there who want nothing more than to spend their money on your idea. Find them, ask them, and be honest and say you don't know when you don't know. Investors are there to lend you their knowledge alongside their hard-earned cash. If they believe in you, it's in their best interest to help you succeed.
Angel Investors
Now we're on to one of my favorites. Angel investors are individuals who are interested in bringing ideas to life for their values and expertise, or maybe they're just looking to dip their toes into the world of investing.
My Recommended Startup Funding Option
I may be biased because I happen to lead our sponsorship team for The Seattle Angel Conference, or because I know they will chew you up, spit you out, then pat you on the back and potentially hand you a chunk of cash if you pivot and thank them politely for the abuse you just received.
Finding Angel Investors
Angel investors can be found in any major city and there are many ways to coordinate online with groups across the country; even SAC allows attendees from outside of Seattle to virtually compete in their events. Just open Google and search for "angel investors near me".
License Agreements
License Agreements are fantastic. They're probably not what you imagined for startup funding and a few steps ahead of where you are if you're reading this, but many companies are willing to pay you a small amount upfront for a prototype idea of a product or service. A fantastic resource for this is How To License Your Million Dollar Idea by Harvey Reese. It may be an older book, but the information is still valid and highly valuable.
A license agreement is a way of selling your idea to one or more companies for them to use for an agreed-upon time period, while you collect royalties on sales or fees. This might be right for you, especially if you need to get off the ground.
Crowdfunding
Crowdfunding for startup funding isn't a pipe dream, it's just harder work than most people want to admit. My primary advice: fill out every single box, answer the "who, what, where, when, why, how" for your product, and specify what you would do with the money.
Calculating Your Startup Funding Needs
Use the SBA start-up costs calculator and always remember to compensate for the percentage the crowdfunding platform charges as well as the payment processing fees. For instance, Kickstarter can be anywhere from 8-10% depending on the amount you are successfully funded for.
Finding The Right Crowdfunding Platform
There are dedicated platforms for all types of start-ups. Take Biostart.io for example, a service designed to allow people to raise startup funds for biomedical technology. This is an example of a very risky field, though, so make sure if your start-up is in such a field that you have access to the legal help you’ll need. Kickstarter and Indiegogo are a few other crowdfunding platforms with well established user bases.
Be Prepared
A lot of successful crowdfunding projects have adequate funding to produce a campaign for the crowdfunding platform. This early investment can be crucial to developing a successful strategy. Don't be discouraged if you don't succeed the first time, you can always try again.
Startup Funding Through Business Partnerships
This one is probably the trickiest to pull off. This involves getting a meeting with a CEO for a company that is already successful in your industry but could benefit from your product or service. Much like a licensing agreement, you would be under contract, but in this case, you would offer ownership of your idea to the company you're attempting to partner with.
Startup Funding with a hook
Most companies will likely shrug you off, but if you can hold your ground and prove you're the right guy (or gal) for the job, they may very well allow you to partner with them as the lead developer for your idea, offer to help build it, get the startup funding you need. and allow you to retain significant ownership of the idea.
Lawyer Up
I will not say this again: you WILL need to hire an attorney for this contract. Research the attorney and ask them to provide you with examples of other partnership contracts they've written.
White Label Services
White labeling is much like licensing and partnerships, with the exception of branding. Your idea will be licensed for a fee and the company will not be required to mention your brand or company while they offer your services or products.
White labeling is a very successful tactic and can help you generate startup funding for an established piece of software or other intellectual property.
Whether you realize it or not, many services you use day-to-day are white label services. White labeling is great for generating income, but will not help you establish a brand name or expand your customer list. That said, having the capital to grow your brand can make all the difference.
Conclusion
Now that we've covered some ways to generate startup funding, go make us proud! Use your best judgment to decide which form of funding will fit your needs. Spread your wings and fly, young ones, and if you fall back down to the harsh reality of the start-up world, give us a call and we can help you get on the right track.
Wirtten by: Andrew Beavers & Dimitri Gedevanishvili
Summary
I had the pleasure of attending a virtual pitch deconstruction for startups this evening hosted by the Seattle Angel Conference in preparation for SAC XVIII, so I’m going to get the information out while it’s fresh. The deconstruction consisted of a few parts: a meet and greet, a brief 1 minute pitch, another meet and greet, and then a 3 minute pitch with an investor critique.
As a sponsor for the Seattle Angel Conference, I am not only responsible for ensuring successful marketing campaigns bringing in new companies, but also to provide SAC with ways in which they can help demystify the process of competing in The Seattle Angel Conference.
I was able to compile some common mistakes that startups make when constructing a pitch deck, and I hope to offer some insight into what they are and how to prevent making them yourself.
Now that I’m home after a long night (our meeting ran over by an hour), I’m ready to sit down and get started. Seeing as how John over at SAC will likely deconstruct this article like the startups tonight, I have to add a disclaimer - this article is not to give you a template on the format you should write your pitch in, but rather things that the investors mentioned while critiquing the pitch decks.
A pitch deck or business pitch is a document that covers information an investor would want to see to help guide their decision on whether or not they’re interested in investing. A pitch deck is typically presented by a member of the company or startup to an individual or group of investors. Whether you’re going to a friend, a relative, an angel investor, or a venture capital firm, a pitch deck will save you the frustration and confusion of being underprepared.
What Problem is Your Startup Trying to solve?
This might seem obvious, but it's paramount that you define what problem your startup solves. This is something called Problem-Solution Fit. If your product doesn’t solve a problem for a group of people, then your product may not be viable.
Make sure to do your research, as many investors want to see that you have customers before you even have an MVP (minimum viable product). I know it seems crazy to try and get customers for something that hasn’t been developed yet, but this is something you have to get over. If your product resonates with people, they will be your early-early adopters, which is exactly what you need to prove that people want your solution to their problem.
What Qualifies You to Solve This Problem?
So now that you’ve validated your solution to a common problem, it’s time to validate your team. Yes, your team - the people whose faces are always on your conference calls, the names on your most called list. Another primary issue I heard from investors tonight is that these startups weren’t validating the solution by showcasing the team that was going to provide it.
You can’t expect a dog groomer to build a rocket ship (apologies to the rocket enthusiast dog groomers, it’s just an example). That said, if you are a dog groomer attempting to build a rocket ship, talk about what qualifies you to build that rocket ship. Discuss your credentials, even if they’re self-taught.
Your team is what most investors are investing in. I’ve talked to investors who invested in a company just because they liked the team, despite knowing the idea would likely fail.
How Do You Plan On Going Broke?
This may seem harsh, but keep in mind how many startups fail. You must have a monetization strategy & structure in mind before you approach an investor. If you don’t know how you’re going to make money, then an investor will likely have nothing to offer outside of advice.
If you don’t have a method for monetizing, I highly recommend you do as much research as possible on how different industries make money. Once you have a good idea of how you’re going to monetize, it’s time to map it out and compare it to your market - because you have a target market, right?
Your research should include the cost of operations for your industry and structure, your audience size, and user adoption rates for your industry. After you’ve done your research, you should be able to cobble together some realistic numbers that look good to an investor. If you can’t, it might be time to go back to the drawing board.
Moonshots are great, but there will be no pie in the sky.
Your idea may well be the next Uber or Facebook, but if you try telling that to an investor, they may roll their eyes. Investors are tired of hearing people talk about being the next tech giant. They want to make a safe investment in a realistic market structure.
If you come into an investor pitch and talk about being the next Bezos, it’s really hard to take you seriously. We saw you pull up in your 80’s Volvo (in 2014 I met with a Venture Capitalist worth $1.6b who had just traded in his 80’s Volvo for a Tesla Model S, so you might be in the right place). Your startup needs to be realistic. Don’t go for the pie in the sky.
Make sure you respect the fact that you’re a small fish in a big pond, and that you’re interested in building a solution that people are going to pay for. The pitch deck should focus on how you’re going to get from point A to point B of your first phase. After you’ve realistically broken down to an investor that you can make that journey and that you aren’t skipping steps, you will have the chance to discuss your phase plan with that investor. You can reach the moon, but there is no pie.
1-Minute Pitch Recommendations
Keep it short, and be sure to mention your name and the name of your company at the beginning and the end, and don't try to cover too much content. Here are a few things that were mentioned earlier tonight:
Explain how you got here and what your credentials are.
Talk about the problem you identified and how you’re trying to solve it.
Describe how you make money.
How many customers or users do you have?
3-Minute Pitch Recommendations
Tonight's 3-minute pitch deck included a slideshow, and this is the core of what this article is about. Your pitch deck is the document (in this case a slideshow) that helps guide the information you need to cover. Make eye contact with the investors, memorize your slide deck, and most importantly, bring your passion!
The sections above cover the major concerns I heard investors talk about tonight. Some additional tips include:
Avoid using filler or hype words, as they can seem disingenuous.
Assume every investor has ADD - your presentation should be a hand-holding experience.
Make sure that the font on your slideshow is an appropriate size for those who can’t see as well... ahem.
Use graphs and numbers that are easily digestible. Any time investors spend processing numbers is time they may be missing other important information. Save the complex numbers for longer pitches.
Make the investor hungry for more information. This is your shot to get them wanting to know more; they’re here to listen to what you have to say.
Describe why your solution is better than your competitors. Yes, you have competitors. Why are you better?
Make sure your pitch fits the allotted time. If your pitch is too long, you haven’t consolidated the information to really garner the attention of the investors. This can result in important points being missed and filling your presentation with fluff.
Personify the problem. People want to feel emotionally connected to the story of those affected by the problem.
Make sure your name doesn’t cause any infringement issues. If you’re a liability and you haven’t done your due diligence, investing in you won’t be as attractive as other prospects.
Stay on topic, but don’t dive into the details. You aren’t trying to get the investors to buy your product, but to fund it.
Conclusion
These aren’t going to apply to every investor you meet. These are just some of the things that came up in a live investor pitch I attended, and are admittedly subjective. I hope you enjoyed this article regarding my experience with the pitch deconstruction I attended tonight. If you have any questions or want to add additional information, feel free to comment below and one of our consultants will respond accordingly.
A business development firm focused on growth strategies, branding strategies, and data-driven marketing for enterprise businesses, start-ups, and small businesses.
