Startups are small businesses that were formed with the goal of creating a one-of-a-kind product or service, bringing it to market, and making it appealing to customers.
Startups are built on innovation, fixing flaws in existing products or inventing completely new categories of goods and services, causing entire sectors to change their methods of thinking and conducting business. Startups in Big Tech, such as Apple, Google, Facebook, Netflix, and Microsoft (together known as FAANG stocks), are well-known, but firms like WeWork, Peloton, and Beyond Meat are also considered startups.
If you want to start a new business, this guide is the holy grail for you.
How Does a Startup Work?
A group of employees works together to create a product that customers will want to purchase. Regular businesses just repeat what has already been done. A potential restaurant manager can license an existing business. Such that, they operate according to a pre-existing template for how a business should function. A firm, on the other side, tries to create an entirely new template.
How Are Startups Funded?
- Bootstrapping is a preliminary round in which the founders, their colleagues, and family invest in the company.
- After then, “angel investors,” or high-net-worth people who invest in early-stage firms, provide seed capital.
- Then there are the Series A, B, C, and D fundraising rounds, which are primarily headed by venture capitalists and involve investments of tens to hundreds of millions of dollars.
- Finally, a business may elect to go public and raise money from investors through an initial public offering (IPO), a specific purpose acquisitions company (SPAC), or a direct registration on a stock market.
Types of Startup Funding
- Small business loans
When it comes to financing options, small company loans are the bread and butter. Small company loans are similar to personal loans in that you’ll be authorized for a certain amount of money with a specific interest rate.
Banks and financial institutions, some of which may be located through the Small Company Administration, can help you acquire a small business loan (SBA). Remember that, just like a home loan, you’ll need good business credit. This will enable you to obtain a larger loan with a cheaper interest rate, lowering the total cost of the loan.
- Funding rounds
Many businesses may go through many financing rounds or periods in which they seek various forms of investment. Series A, Series B, and Series C investment rounds are divided into three categories, each matching the company’s stage. Money is often swapped for business shares in every financing round, implying that investors expect a payback.
Funding rounds may be required to get your business off the ground, engage in critical marketing, or assist in getting your product to market.
- Venture capitalists
A venture capitalist (VC) is a sort of private investor who invests in potential new businesses. Members of a bigger venture capital company frequently venture capitalists. These corporations frequently have boards that deliberate on certain companies to support.
If the venture capital firm chooses your startup, a VC will contact you with a financial offer. Usually, venture capitalists purchase stock in a firm with the expectation of receiving payment in some way if and when the company succeeds. However, if your company fails, the VC has made a poor investment and will get nothing in exchange.
You could be a suitable candidate for venture financing if your business is past the idea stage and has a minimal viable product. Venture capitalists are businessmen who don’t take needless risks. Startups need to be prepared to offer their service or product to the public but lack the cash to do so in order to attract venture capital investment.
- Angel investors
Angel investors are wealthy individuals who invest in startups and budding entrepreneurs. Angel investors, unlike venture capitalists, usually work alone and are not part of a board or business.
Angel investors, like VCs, anticipate a return on investment because they’ve bought some kind of stock or ownership in your firm.
Angel investors, like VCs, might be left high and dry if they make a terrible investment. As a result, they are a safer alternative to typical company loans. But keep in mind that you’re selling stock in return for cash. Since a result, you may no longer have total control over your company, as you will be required to meet the needs of your investor.
If you’d like to engage angel investors, make sure your company is well-organized and that you have a strategy in place. Angel investors are generally regarded as part of the initial round of investment, which means they offer cash to startups. As a result, angel investors are an excellent fit for startup companies with only a concept.
Angel investors, like geniuses, are difficult to come by and aren’t necessarily as well-organized as a venture capital company. Angel investors might be relatives or friends. As a result, they’re a bit of a wild card. Someone you know who has money may be a prospective angel investor.
Crowdfunding is the way ahead for many people with a company concept but little or no capital. Crowdfunding is a kind of fundraising in which private supporters (individual investors) buy your goods or services before it is released to the general public. This allows entrepreneurs with a good concept to raise funds for their venture in exchange for offering a product or service to its backers.
Crowdsourcing may be done in a variety of ways, including hosting local or online events, although it’s increasingly popular to use crowdfunding sites like Kickstarter or Indiegogo. Users may quickly browse hundreds of ideas on these sites and back the ideas they’re enthusiastic about.
You could be a good candidate for crowdfunding if you offer a consumer-oriented good or service. You’ll need a strategy for using any money, as well as a thorough map of the funds needed and how they’ll be spent. To offer openness to your investors, several sites, like Kickstarter, require you to put out your financial targets or stretch goals.
- Equity crowdfunding
Equity crowdfunding is similar to crowdsourcing in that it involves raising money from a large number of individuals. You are not selling your goods or service, with the exception of traditional crowdfunding. Equity crowdfunding entails the sale of stock in your firm. This entails selling a variety of holdings in your firm, such as stocks, revenue shares, and so on.
Suitable for: Equity crowdfunding is better suited to enterprises in the early stages since it entails selling equity rather than a marketable product or service. Stock crowdfunding may be a wonderful method to get your firm off the ground if you’re confident in selling stock and have a good business plan.
A business incubator, sometimes known as an accelerator program, is a group committed to assisting new firms in getting off the ground. Incubators are typically created and sponsored by other businesses that wish to assist new businesses to achieve their full potential. Incubators frequently provide workspace for businesses, as well as money and coaching.
There are a variety of incubator groups to choose from, so if you’re interested, do some more research to find local and worldwide possibilities.
An incubator may help almost every early-stage company or entrepreneur. Those with a strong company concept and the team will gain the most, but even companies that are just getting off the ground might tremendously benefit from the appropriate incubator.
How do you pitch a startup?
Your startup pitch is crucial to your success, and understanding how to pitch a business is crucial. If you can’t find buyers for your company, no matter how inventive, well-thought-out, or possibly profitable your product concept is, your company will have a tough time scaling up and attaining widespread success. Raising financing, of course, offers a particular set of problems that many entrepreneurs face. Your potential investors won’t just take your word for it that your firm will succeed; you’ll have to show them that financing in your startup will give them a decent return on investment. Obtaining funding demands putting together a great, engaging proposal that persuades investors to support your firm.
1. Keep your startup pitch short and sweet
When pitching your business, the most crucial thing to keep in mind is that investors are bombarded with investment offers. Startup activity has continued to rise above pre-recession values, giving investors a wide range of options for where to put their money. That implies you must explain your company idea and strategy to provide investors with a return on investment in a clear and concise manner.
Begin with a quick description of your business concept that expresses your vision and purpose right away. Describe the problem that your startup is seeking to address and why your company is the best candidate to solve it. Outline how your company intends to make money. Above all, don’t get mired down in little details that detract from your main point.
2. Maintain control over the timing of your startup pitch
It’s essential to make the most of the time you have to present your company pitch. Nothing irritates investors more than a protracted pitch; on the other hand, you don’t want to spend the precious time you have by being too short. That either you or your potential investor sets the time limit for your pitch, stick to it and time your speech so that you don’t have to rush to the conclusion.
- Manage your rhythm during the pitch to avoid running over or, worse, floundering and running out of things to say in the first few minutes.
- Remember that slides are only a tool for you to utilize, not a crutch. To put it another way, never directly determined from a slide but never spend longer than 3 minutes on a single presentation.
- Keep a steady pace and avoid hurrying. You want to keep your audience engaged without overloading them with information or giving them too much time to reflect on anything else other than your delivery. It’s an indication that you’re moving too slowly if your listener is fantasizing.
- Allow enough time for inquiries. If someone is going to invest in your business, a successful pitch realizes that a discussion is required. After all, you want possible potential investors to share your enthusiasm for your business, just as you do with anybody who would listen.
3. Tell your startup story
When delivering a pitch, it’s easy to become mired down in statistics, figures, and spreadsheets, yet this material will nearly always fail to pique your investors’ interest. Instead of treating the chance as a sales pitch, utilize it to teach prospective investors about your company’s history. This kind of narrative will create your pitch far more memorable and entertaining for your viewing public. If your client needs actual data, they can always request it from you.
It’s as easy as this to tell a story:
- Developing a professional demeanor yet being emotional and enthusiastic.
- Looking around the room. Know when to crack a joke and when to move on to a more serious subject. You may go to the same place in any method, but only one will connect with your viewers.
- Just in as a support framework for your startup’s story in a subtle way.
- Making something that is both memorable and distinctive to your startup.
4. Stay focused
However, don’t lose track of the purpose of your pitch while you tell your narrative. Honoring the schedule of your clients should always be at the forefront of your attention. To prevent having lost in unimportant tangents, make sure your pitch’s main parts are clearly developed and highlighted when writing it.
5. Demonstrate how your startup’s product or service is distinctive
One of the most important aspects of attracting investors is demonstrating how your service or product differs from others on the market. It isn’t enough for your startup to be able to address an issue; it must be able to tackle a specific issue in a way that no other company can, and you must be able to demonstrate this in your pitch. It’s a good idea to point out any patents or licenses your product possesses, as well as any big buy orders or distribution arrangements, to back up your claims.
6. Allow potential investors to get a firsthand look at your product.
Allowing investors to see and feel your product personally is another great method to demonstrate the unique characteristics of your product. Images or photos of your product might help investors visualize it, but if at all feasible, allowing your audience to grasp it or check out a live demo can boost your effectiveness.
7. Determine who your intended audience is and why they are important to you
Investors are interested in knowing what your product is, but they also want to know who will use it. Using data about your target audience to build a map of your ideal client can assist investors to see that your company’s new product has enough need to warrant their investment.
Whether your business is focused on a product or service, one thing seems certain: you must have an intended audience if you want to earn money. To target your core demographic, use psychographic and demographic information. Explain why these people are your target market. Use relevant statistics to back up your assertions and demonstrate the profitability of focusing on a certain demographic.
8. Know your numbers
You’ll still need to talk about the main statistics that investors care about when telling your business’s story: how much capital your startup needs to raise, what your present overhead is, where you need to get to be successful, and what your schedule is for getting there. While providing too many statistics in your pitch might detract from your focus, incorporating a few key data in your pitch will help you to show that you are ready and understand what is important to your company and industry.
Top 6 Crowdfunding websites in India
- SeedInvest Technology
Can I start a startup while working?
Many businessmen start their businesses while working full-time for another company. This arrangement allows them to receive a wage while also allowing them to concentrate on their business. While this is an ideal scenario, it is tough to manage. It necessitates a careful balancing act. When most workers begin working, they sign employment contracts. These agreements might range from basic secrecy or non-compete contracts to full-fledged employment contracts with numerous limitations. Outside of typical office hours, operate your startup. It’s challenging, yet many businesses have succeeded.
Entrepreneurs have a habit of telling everyone they know that they own a firm. They frequently brag about their accomplishments to particular coworkers. This is not a good idea since it might backfire. Taking pride in one’s accomplishments may frequently invite unfavorable attention. Colleagues may develop a negative impression of you. Supervisors may be skeptical of your work ethic or commitment to the firm. It’s never a happy ending.
If you’re a business owner, you’ll need to know how and when to pitch your idea. Even if you don’t intend to seek investment, having a strong elevator presentation demonstrates that you understand your company through and out, which will come in helpful if and when you opt to seek funding.