The foundation of any promising startup will require innovative business models and products. However, one major aspect that cannot be ignored is steady flow of investments, especially during the initial stages. You will need adequate funds to hire people, improve technology and launch an extensive marketing strategy. You need to be aware of the top startup funding challenges and tips to overcome them.
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Tips on how to overcome startup challenges
- Determine the amount required: Whether you approach a bank or angel investors for funds, it is important to first determine the amount to ask. It is not a good strategy raise as much as capital possible through loans, since you have to pay them with interest.
- Be concrete & specific: Investors will be more interested to invest in startups that can generate profits. You need to show them where you will be investing their money. It should not be on some fancy items or unwanted automation.
- Business plan: This is crucial to know where the accumulated money is to be spent. Most investors will require viable business plan with realistic financial forecast.
- Demonstrate positive cash flow: Small startups trying to expand should display being cash flow positive. This will help derive desired funding. Identify the amount required for necessary training, production, marketing, hiring and automation.
- Scalable business model: This is essential to derive venture capital or expand your small business. Investors will be eager to ready-to-scale or scalable businesses. Hence, your business model is to display potentiality to improve revenue in the future with minimal expenditure. Also, you should come up with a scalable business idea. It means increase in profits without increase in costs. Scalable business models tend to exhibit lower marketing and infrastructure investment, with higher profit margins. Avoid relying only on competitor’s models. Rather develop one that works and offers the desired results. It should support your business growth, thereby overcoming startup funding challenges. Outsource all non-strategic business aspects to reduce expenses. For this, you can implement different types of software ideal for your small business. Also incorporate the latest software technologies and automation wherever possible. This can help attract potential investors.
- Identify appropriate funding option: There are available different types of startup funding options. Select a suitable funding alternative to enhance chances to obtain funds.
- Self-funding or bootstrapping: You can use your savings or simply borrow some money from your friends and family members. This way, you can enjoy getting flexible investment terms. You can even do a job along with your business until it makes good profit.
- If you have credit cards, then you can use available limit wisely to fund your startup. But it is likely to be an expensive option as it comes with huge interest rates. You will be liable to pay the debt even if you wind up your business. Also your credit score is likely to take a hit.
- Bank loans are another commonly options to overcome startup funding challenges.
- Venture capital: They generally provide amounts above $2 million. They can offer valuable guidance to help develop your business while having a greater say in your business operations. However, you can expect them to provide investments only after your business experiences more profit and growth.
- Angel Investors: They provide flexible investment terms, but within $1 million, against your startup equity. They are ideal options for tech startups, small plant owners, etc. However, they will have a greater say in your business operations and also want to know your exit strategy.
- Crowdfunding: You can reach large potential investor base through different reputed crowdfunding platforms. But such campaigns will require lots of planning and time.
Following the above tips will help you to know how to overcome startup challenges.