Every business needs capital, whether the investment comes from a bank, government, or more innovative sources like crowdfunding. Regardless of where the money comes from, every investor’s level of involvement and professionalism varies as does their relationship with your company.
Investors are unique players that can come and go, but no matter their level of involvement in the business, they can make or mar its future success in meaningful ways. Knowing how to optimize investment and investor involvement in ways that generate the best results for your company is key to maximizing the funds raised.
With that in mind, one first needs to know the different methods of fundraising available to startups. By getting into the nitty-gritty of capitalization and understanding the different funding options available, entrepreneurs and founders can assess which method(s) will provide the most long-term ROI.
Test the Waters by Beanie & Blazer teaches proven strategies and guidance that connect businesses with traditional (or non-traditional) capital sources that create a win-win for companies making an impact in their community. The idea is to turn a business into an attractive asset that encourages people to invest in it (even if the company is not actively looking for investment). Beanie & Blazer calls this “investability”.
Investors are often viewed as leaders in their industry, but anyone who helps to build the foundation of a business by giving it the funds it needs to get off the ground can be considered a key investor. When a startup begins to take flight, it’s typical for friends and family to provide the necessary funds to help launch the business.
Friends, family, and other close relationships may offer relatively modest amounts of money, which is often enough to get a founder started. In the right situations, having friends or family members as investors can provide startup founders with between $10,000 to $200,000, which is a strong number to get anyone started. This is known as the pre-seed round or Friends & Family round in fundraising. According to a survey conducted by Silicon Valley Bank in 2019, around 69% of entrepreneurs start their journey with funds provided to them by their close relationships.
Even when there’s no hard evidence that a venture will take off successfully, friends and family mostly consider confidence in the overall relationship when investing in the founder. They believe in the founder’s capabilities and ideas, despite the uncertainties entrepreneurship brings. This type of relationship fuels the trust that is needed to successfully close early funding rounds (even if an entrepreneur has little-to-no proof of results or viability).
Friends and family acting as investors often mark a founder’s first step toward capitalization, but the next opens doorways to financial institutions that offer more significant sources of capital. Banks and government agencies can both be considered unique choices since they are not necessarily investors.
When it comes to raising capital, banks should rarely be the first stop for entrepreneurs. Banks want to invest in companies that are generating revenue and jobs, more established businesses in an intermediate- or later-stage of their growth. However, relationships with these institutions can provide access to programs, grants, loan benefits, merchant advance loans, and other financial services that can ease a startup’s financial burdens.
Government agencies, on the other hand, are startup friendly. Federal and state programs offer startups up to $250K in grants that can be used for anything from R&D to prototype development or proof-of-concept studies. Additionally, many states provide incentive funds through their own unique grant programs. Some of the renowned grant programs in North Carolina are NC IDEA and Mountain BizWorks. For more details, refer to these business resources for deeper knowledge on how to apply for grants or raise funds through other modes.
Do your diligence and understand what grants or debt vehicles may be available to you and your startup. They’re often offered based on where you live, what industry you’re in, and how your business may impact the local community.
One of the top choices for early-stage startups, angel investors are an excellent option for businesses that are not yet ready to obtain venture capital but need funds greater than a Friends & Family round to get the ball rolling. Think of them as the go-to source between small-scale family investors and heavy-hitters like venture capitalists.
Angel investors have become a fundraising staple for up-and-coming entrepreneurs since they’re usually individuals with a yearly income of $200,000+ and/or a net worth of $1 million or more. Since they’re typically present when a business is ready to go beyond its seed stages, angel investors mostly set their sights on smaller operations with great potential for scale that has early success or a cohesive founding team.
Beyond offering enough money and resources to get started, angel investors can provide founders with relevant connections they may not be able to find elsewhere. In fact, they also have valuable advice that is essential for entrepreneurs who are starting up companies. Most of this advice comes from years of experience and expertise, therefore is beneficial before making key decisions for future success. This makes networking with multiple angel investors a high leverage activity for any company in the startup phase of their journey.
Angel investors can often be found frequenting local events & venues geared towards startups including pitch events, local business meet-ups, chamber of commerce events, incubators, traction studios, and co-working spaces.
When like-minded angel investors unite and operate under one angel investment network, they’re called a syndicate. Syndicates allow multiple investors to fund one or more startups providing more initial funding & expanded human resources (network, experience, advice). They mostly offer opportunities on a deal-by-deal basis and often facilitate end-to-end processes that include collaboration, presentation, deal-closing, and communication. This is possible due to its hierarchy of management, leaders, founders, and investors.
In this type of syndicate, there is often an investment management team that spearheads the decision-making process and directs where investments go.
A good syndicate analogy is a Spring Break trip with your friends. The group collectively chooses the location and accommodations, and each person invests a fraction of the total cost of the trip. The group’s investment (money) leads to a return that will last a lifetime (the memories). In a startup’s case, the syndicate’s investment (money) leads to a return (in the form of equity or debt in the company).
One of the most popular and traditional methods to raise capital for entrepreneurs is through venture capital firms. These funding groups provide the opportunity for a company to succeed by providing them with capital in relatively higher amounts than what one could receive from other sources.
Venture capitalists can supercharge startups and catapult them ahead of the competition, giving them stronger credibility and a wider market reach. If they believe in a company’s ability to grab significant market share, venture capitalists can provide almost unlimited amounts of funding (based on company valuation) to ensure a business has a sustainable place in the marketplace.
However, grabbing the attention of a venture capitalist firm, let alone earning their trust, can be a challenge for most companies just starting out.
Keep in mind, VCs typically set their sights on businesses that show potential to grow extraordinarily large, especially those who already have some traction in the market. Beanie & Blazer’s input in such cases acts as the guiding light to becoming investable - preparing companies with the proper education and resources to take on investment capital.
Fortune 500 organizations and other large, private corporations often invest in smaller companies because letting raw talent bring something new to the table help build a progressive economy. This is because startups bring fresh ideas to the table and their innovation can often be revolutionary.
To gain some perspective, one can compare small businesses to stocks. Larger organizations invest in smaller businesses with the hope that as their valuation grows, so does theirs. Through this, large corporations can diversify their network of holdings.
Smaller companies often employ cutting-edge technology that is not available elsewhere and offer a more personalized service than larger organizations can provide. This serves as the primary factor for larger companies to invest in startups and expand central processes/offerings.
Crowdfunding platforms are becoming a popular way for startups to raise funds, as this allows startup companies to reach out and engage with a large, intimate group of potential investors. Investors can span from a founder’s home neighborhood to anywhere around the world, which not only gives startups more exposure but tremendous aid to scale up. Additionally, this could be another great way of leveraging the support of friends and family, as mentioned in the section above without counting on a sole family member.
Investment crowdfunding is different from donation crowdfunding or rewards crowdfunding because it involves raising money through equity and debt investments instead of donations. This is very different from the way companies like Kickstarter raise funds for creative projects. In the case of equity investments, investors (in this scenario “the crowd”) get shares in a company that will eventually pay dividends.
While there has been some debate on whether investment crowdfunding should be regulated by the SEC, most states have opted not to regulate it due to the innovation and opportunity it brings to communities. With the help of funding portals like Republic.co, Wefunder, Mainvest, and Vicinity Capital investors can make up to anything upwards of three-figure investments in as little as 5-clicks, a win-win for investors looking for opportunity and startups looking to quickly capitalize.
Beanie & Blazer’s Test The Waters program can help you prepare and launch fundraising campaigns in as little as 30 days. Beanie & Blazer’s proven models & experienced team have successfully placed over 150 private investments as a company.
When raising capital for a startup company, it can be tempting to make pitches to any investor with cash and an interest in the product or service. However, this might not result in securing the best deal for the business.
Proactively becoming educated on the myriad of options available when it comes to capitalization options can point startups in a direction for success.
Traction Studios, like Beanie & Blazer, offer a medium to unlock the granular education, mentorship, and consulting to channel the company into becoming investable, capitalized, profitable, and scalable.
Chasing after a dream as an aspiring entrepreneur is undoubtedly exciting, but it takes more than determination and a leap of faith to reach your goals. Every startup needs enough funding to bring novel ideas to fruition but finding the right support can be tricky.
In just six weeks, Beanie & Blazer’s Test The Waters program can help you prepare and launch a trial investment crowdfunding campaign. We leverage the best practices from dozens of successful investment crowdfunding efforts and hundreds of investor discovery calls to help creators build investable companies.
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Beanie & Blazer does not provide investment advice and is not a registered investment advisor or broker-dealer. Investing in startups is risky, never invest more than you’re willing to lose.
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