Most startups are funded by the entrepreneur’s personal means, while a portion starts with money borrowed from friends and family members. There’s nothing wrong with committing your assets or personal relationships because you believe in your vision; however, this is always risky. When you’re young, no matter how convincing, even those closest to you sometimes doubt you. They don’t doubt your vision or your conviction; what they doubt is your lack of experience and your positivity bias. This might turn into a serious fundraising obstacle.
Some believe that your only alternative is to find an angel investor or attract enough attention from venture capitalists, but even this is not necessarily the case. In 2024, there are so many exciting alternatives to getting into debt or selling huge chunks of your equity to start your own business.
With that in mind and without further ado, here are the top four fundraising tips aspiring entrepreneurs need to hear in 2024.
1. Leverage crypto for fundraising
A lot of people just look for crypto that will make you rich this year as an investment option without even realizing that there’s more to it than just an increase in value. For instance, the role of cryptocurrencies in fundraising can be just monumental.
First of all, many people want to invest in your startup because they believe in your idea and vision. This is what Kickstarter is for. Unlike people preordering or subscribing, people on platforms like Kickstarter benefit from the idea that your business may deliver on its promises in the future.
Some of these ideas are so bold that people won’t necessarily want to be associated with them (even though they still want to pledge material support). The anonymity of crypto investing can give them just that.
Other than this, by allowing crypto fundraising, you’re unlocking a considerable portion of the planet as a potential source of investment. Just think about it: a person needs a smartphone, a crypto wallet, and some funds in this wallet to support you.
Many tech businesses raise money through crowdfunding. The majority of these platforms already support crypto payments.
Lastly, a small business can raise funds by creating tokens and selling them to investors. This is what token presales and ICOs are often used for. It’s a crafty way to offer your audience something that will only be of value if your assets increase, which makes them even more invested.
2. Why, when, and how much?
The next thing you need to do is answer three major questions:
- Why raise money?
- When should you start?
- How much do you need?
While these three have seemingly simple answers, once you scratch beneath the surface, you’ll find the answers to be one harder than the next.
First, it’s pretty obvious—one of the main reasons ideas die is the lack of resources to see them through. You need the money not just to launch but also to stay in business until you become sustainable. You would be surprised at the pace at which young businesses burn money.
You need your war chest to help you handle all the operational expenses and cover emergency expenses. Raising money is often complicated and can be quite hard on your ego. You need to defend ideas you believe are reasonable and explain things you know in your core to be self-explanatory. Understanding why you need it will get you through the process with your ego untouched.
Remember that once you start raising funds, you’ll have to give your investors some timeline. For instance, venture capitalists will want to know your timeline. They’re maybe a bit more optimistic with the current state of the market, but they still won’t recklessly enter into investments they see as too risky.
This is the most difficult part: determining how much you need. You need enough to launch, sufficient to cover your expenses until you become self-sustainable, and an emergency fund. As we’ve mentioned, startups often fail because funds fall short. You need enough to ensure it doesn’t happen to you.
3. Be careful with your equity
You must understand your investors and what they want. Presales are pretty simple; it’s an equation – you give them a specific service or a promise of service and receive funds in return. The unit you promise them has a particular cost, the amount of money you receive matches it (usually at a discount to incentivize presales further), and that’s it.
However, what if you’re trading equity for funding? Suddenly, things are not as simple.
First, in this stage, the value of equity is determined by your belief in your idea. If you don’t believe your idea will amount to much and are just trying to semi-scam your investors, then any amount of money is worth any equity. You can’t go wrong.
However, if you trust in your business, you know that the equity you’re selling now will be invaluable in the future. So, here’s the problem: You’re equity of sale that you have to sell to bring your idea to life and increase its value.
Alladin is trading one of his three wishes to escape that initial cave. A wish is invaluable, but the other two wishes are worthless if he doesn’t escape.
In other words, you’re trying to balance selling too much equity and not getting enough funding. To do this, you need to understand your investors and accurately make your financial projections.
4. Make a killer pitch
A while ago, there was a guy on Kickstarter who made $55,492 making a potato salad.
This was an incredible online phenomenon, which may not indicate the business world. However, it actually contains a hidden truth about fundraising. After all, a guy made a joke and a lot of money, whereas many people with decent business ideas failed to make it through.
When making a pitch, start by creating a value proposition. What are your investors getting from committing their resources to your idea? Without answering this question, you can’t even begin raising funds. The best way to answer this question is to research your target audience.
Second, you must leave your ego behind and learn from your rejections. Many people get offended, but sometimes, a follow-up question about what made them say no can illuminate. You would be surprised at how many people will accommodate you if you’re forthcoming about your desire to do better in the future.
Raising funds is a threshold a lot of potential entrepreneurs never cross.
Many great business ideas are nipped in the bud because insufficient capital backs them. The worst part is that just because someone is a visionary doesn’t mean they have what it takes to raise funds. For this, you must embrace new technologies, understand fundraising fundamentals, leverage your equity, and learn how to make a presentation. Neither of these things is easy.
