How to finance a startup? 7 financing tips with examples

finance a startup it is a decision that more and more public and private investors are making. However, if it is something that is in your business plans, you must prepare your project very well so that it is the one chosen to receive financing.

Here you will learn what characteristics those who give financing for new businesses and what kinds of investments there are. Likewise, you will see some tips to attract investors and different methods to start your business.

How does an investor think when financing a startup?

Know the characteristics that attract the attention of those who can finance a startup It is critical to know how to prepare for that challenge.

Let’s see some of them:

1. Verify that your business is investable

This factor is very important, because when someone invests, what they want is to multiply their money. This means that a invest in a startup It should give you opportunities to scale or grow.

In other words, the startup financing must be scalable raise capital greater in the future.

2. Determine the value of the founding team

To the finance a startupwho know how to do it assess the value of your founding team. For this to be high, you must consider:

Commitment and dedication to the project.
Previous experience leading teams and demonstrating .
Knowledge of the market or sector in which it operates.
The team you have and who will be your partners.

3. Measure the level of commitment

to receive a good business financing, there must be a high level of commitment on the part of the entrepreneurs. Although the illusion, the desire and the work are important, the greatest commitment is reflected when placing money.

If you invest your own money, with the purpose of growing your business, you will gain the trust of investors. Noticing that you have used part of the assets you have, it will be easier finance a startup between third parties.

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Types of investments to finance a startup?

Before doing financing roundsit is convenient that you know the different types of startup financing. Here we show you what they are:

1.Business Angels

East type of financing it involves private investors, such as entrepreneurs, individuals or executives, who decide on their own, and who generally invest both money and knowledge.

To the finance a startupThey mainly invest in the early stages of projects that they know well and have experience with beforehand. Some of the advantages that it presents raise capital in this way they are:

They are attracted by the project and the work of the person who directs it.
Because of their reputation, some business angels represent a special seal of quality. This is something that may draw the attention of other investors in the future to decide finance other startups.
Apart from providing capital, they share their experience in the sector, contacts and more.

However, this financing of or physical also brings some disadvantages, such as the following:

Tendency to invest small amounts.
Tendency to interfere in the decisions that are made if they know the sector deeply.
Limit on the ability to perform follow-ons, or invest in future rounds, as they do not have any resources specific investment fund.

2. Venture Capital

They consist of firms that specialize in finance startups investing funds that they previously obtain from third parties. This is done according to a investment policy defined.

If you want to get a financing type venture capital, you should consider both its advantages and disadvantages. In the first instance, its advantages are:

They invest large amounts.
They have the ability to provide support in the future, that is, follow-ons, and they do so if things go well.
Not only money is invested, but also reputation and contacts. In addition, they can attract larger investors in future financing rounds for startups.

Now, among the considerations finance startups with this kind of financing is it so:

They tend to be strong bargainers and so the shareholders’ agreement will have clauses where you lose some control. Although it sounds bad, consider that it is the way they try to protect the investment.
being a financing in which a lot of money is invested, the team that is a founder tends to be diluted. In other words, you will lose a percentage of total control of that company, perhaps more than you would like.
After doing the investment in a startup and get into the business, they tend to be pretty disciplined. They manifest this with the follow-up of the business and the control of the most relevant metrics or milestones.

3. Crowdfunding

finance startups through this modality is very popular, since it seeks collective financing through micro-networks of interested investors. In these, a large number of clients or investors finance some product or project.

To the seek funding for startups For these networks, you will find these 2 types:

Equity crowdfunding: it is based on money that is granted in exchange for a percentage of participation in the business;
Product crowdfunding: investment in the acquisition of some good or service.

By applying crowdfunding, you will find the following advantages:

The valuation becomes the one you want, although the platforms will take care of suggesting some. These will be the ones that fit the best according to certain variants.
The closing times of the financing rounds so you can count on money can be short.
It could be considered that this is the best type of financing for entrepreneurs of innovative products.
There are more and more active platforms where you can get investment for relatively new startups.

However, this model also has some disadvantages:

Your project will need to be quite attractive to the public.
Some do not tend to provide a value that exceeds the capital.

How to attract investment to your startup and obtain financing?

now that you know how to finance a startup, and in order for an investor to choose your project as the winner, we suggest you follow these tips:

1. Make a good plan for your business

This tool is basic and in it lies the complete approach around your business.

If you wish financing for entrepreneursyou need to draw up an effective plan that includes an in-depth market study and preventive figures for expenses and income.

In addition, it must include the possibilities for development and the analysis of competitors.

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two. Choose the right financing

when searching investment for your startup, you should try to get the one that is most appropriate for the business. Examine carefully how to finance a startup in each of the options you apply for, their policies and prohibitions, and then choose the best options for raise capital In a simple way.

In order to make yourself known and attract attention, present yourself in contests for entrepreneurs and use digital platforms correctly.

3. Build marketing strategies

If what you are looking for is to finance your startup as quickly as possible, you have to put together strategies so that your name is recognized. By doing it through social networks or traditional channels, your business will position itself and you will build an excellent image.

Get investments through advertising campaigns and or other classes, will help you reach potential customers and get more profit.

4. Offers viability with profitability

If your project is viable, reference and solid, even if it is not original, it will attract financing. You have to show that your business is capable of attracting interest and that there is loyalty from customers.

This is one of the steps not only when you search finance your startupbut when you search financing for any business usually.

5. Create a persuasive presentation

An excellent way to raise capital has to do with the aesthetics and organization of your presentation, which, in addition to being attractive, must explain very clearly what you want to convey.

Avoid putting too many texts, and rather rely on images and explain what the idea of this is. That way, you’ll have a better chance of getting finance your business.

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6. Reflect transparency

Transparency with investors will make you gain their trust and finance your startup in a more effective way. This is a factor that has a great impact when deciding where to invest capital, since it adds credibility and prestige.

So file your reports and all information without hiding or falsifying important data. Always keep in mind that you are building your reputation throughout the market and with investors.

7. Prepare to overcome objections

In order to enable investors to finance your startup, it is convenient to prepare a list of possible objections. Carefully consider the responses you will give when setting out your questions. .

It would not be good for you to put that preparation aside and answer the questions randomly or on the spur of the moment. By noticing your security, you will build trust and have more chances to receive investments.

Advantages, disadvantages and implications of financing a startup

Do startup funding rounds either seek funding for startups It has its pros and cons. Analyzing both sides will help you make a better decision:

Advantages of financing a startup

Basically, the most outstanding benefits of finance a startup are these:

It has the ability to grow faster and can generate quick returns.
Their smaller size structure facilitates a quick response to changes and they are sources of innovation.

Disadvantages of financing a startup

When comparing the startup financing With other investment options to start your own business, the following disadvantages stand out:

It’s risky raise capital with a startup, because they are early-stage businesses.
The work it takes to do funding rounds for startups and running the business in its infancy is very demanding.
There is a greater probability of facing positioning problems within the market due to the competition.
A required investment constant in order to continue growing.

Surely those points against They can be an important limitation when setting up a startup, but they are not the only ones, since there are also other implications that you must take into account:

Implications of seeking investment for a startup

One of the main problems associated with seek funding for startupsis the frequency with which it should be done. it’s basically being a growing business.

Therefore, it requires constant reinvestment, especially during the most important phases of the project. Because of this, it will not suffice raise capital once, but finance a startup It takes continuous effort.