- How to secure your startup funding? Best practices for entrepreneurs
- ICO (Initial Coin Offering)
- Business Angels and Venture Capitals
- EU Grants
- Startup incubators and accelerators
How to secure your startup funding? Best practices for entrepreneurs
POV: you have an innovative business idea but need the funds. You're wondering: what financing options are available for me and which will best suit my product and personality?
You are, therefore, in the right place because most of our clients used to be there, too, and we happen to know the ins and outs of all the financing paths ahead of you.
So let's take a closer look at them.
When a project is funded by the community and consists of small, one-time amounts of money from many people who believe in the idea, we talk about crowdfunding.
The investing community usually stays connected with a given project in some way, e.g., influences the direction of product development or participates in profit shares.
If you're thinking about crowdfunding, you'll probably choose between ICO and crowdfunding platforms such as Indiegogo, Kickstarter, or local and national platforms.
Kickstarter, Indiegogo, and local platforms
Through platform crowdfunding, you present your idea to a large group of people who will primarily buy with their eyes and heart, not with their investment portfolio.
This fact is facilitated by the design of the portals. Each product has a subpage describing the idea, on top of which there is a video or a slideshow. What you post there will be viewed first, and you must make the viewer fall in love with it at first sight.
For this reason, to succeed on Indiegogo or Kickstarter, you need to have outstanding visuals. You must invest in graphics or a film crew because 90% of your success depends on the virality of the graphic content, and people will only share what’s visually engaging.
Who are the crowdfunding platforms for? Due to the relatively low entry barrier (you don't need to have a precise business plan, a team of engineers, or a ready-made prototype), crowdfunding platforms are the best place to fund physical products and hardware.
ICO (Initial Coin Offering)
ICO is about buying a token of your idea. If you need to become more familiar with the term, please read this article in which I explain this and other terms related to blockchain or, more broadly, web3.
The core idea of ICO is similar to that of classic crowdfunding platforms, but in ICO, what counts most is the idea itself, not its visualization.
Your most important document will be the Whitepaper, which presents your product's history, what it will change to the world, what benefits it will bring, to whom, and how. The first ICO investments were based only on whitepapers.
Nowadays, however, ICO campaigns have become more professionalized, and you need a website and some form of visualization. They don't matter as much as on Kickstarter, but they are a must-have to succeed.
And two more key points about ICO. First, it’s inextricably linked to web3 or cryptocurrencies, so ICO is the best way to collect money for software products.
Second, you should consider ICO only if your company is registered in a country with a clear way of dealing with cryptocurrency taxes, such as Estonia.
Business Angels and Venture Capitals
Private investors (Business Angels) and investment groups (VCs) are most interested in your business plan, meaning how the product will earn for itself. So more than your mission or vision, the economic aspect of the project is vital to them.
Investors will only invest in something that will bring them profit, period.
At meetings with them, you will talk about the business model, monetization, the end customer, the product's price, its distinguishing features on the market, and what you intend to spend your money on. To defend your product and get financing, you must know how to find a product-market fit or reach a market niche and bring cash to the table.
Here is a list of +300 questions every VC will ask a startup.
Importantly, investors are most willing to finance products that have already undergone the first tests with users and got positive feedback from the market. Therefore, an essential tool for you is the MVP (Minimum Viable Product), thanks to which you will collect the first feedback from users and have a foundation for investment talks.
When looking for this type of funding, always seek partners who specialize in your industry and have a track record of success as entrepreneurs or investors. This way, you will get the funds AND their market insights, experience, and business connections.
Another financial path for startups is subsidies from the EU and state or university institutions. Such organizations regularly announce funding rounds in a particular industry they consider important. Typically, the subject of investment rounds is quite general, e.g., "process automation", and many projects fall under this umbrella.
In the case of grants, your pitch is an investment application, a heavily structured, complex, and complicated document in which you describe all the assumptions related to the project.
The organization evaluates this form according to a particular answer key. For this reason, if you want to get funding from the EU, you should use the help of a company that specializes in completing such applications. Whether you like it or not, they got the keys.
Mature businesses usually choose this way of funding with an idea for some new tool or for... passive income. Unfortunately, EU grants have become easy money for shady guys seeking to cover their current business costs and debts.
Nonetheless, grants are a good path for hardware startups because you can get funding for the R&D. This is extremely important for MedTech startups and other projects that rely on physical devices because they first need to undergo clinical trials and long-term certifications that usually consume a lot of money and time.
Private investors are reluctant to invest in hardware, especially one that isn’t developed and tested. The reason for that is it's easy to freeze any hardware product because of geopolitical occurrences such as war or pandemics.
But, on the other hand, if you come to them with a tested, ready-made product, you increase the chance that they will look at you favorably.
Startup incubators and accelerators
Incubators help startup Founders take their first business steps. They provide a workplace, organize networking events, and give access to specialists and business knowledge in exchange for shares in participants' companies.
Incubators bring together young founders who want to learn and develop in a safe, organized startup environment. They're startup and business playgrounds for maturing entrepreneurs.
Incubators usually do recruitment, during which you have to pitch your idea to them. Usually, you send them a PDF with a general description of your concept and some visualizations, and if they like it, they invite you to an interview, where you describe the idea in more detail.
In the case of incubators, what counts the most is your enthusiasm and will. Of course, the idea is also important, but you must be 100% committed to releasing something new into the world and hungry to learn and gather experience.
You don't need a prototype or a detailed business plan; you need a well-described idea, well-identified recipients, and the problem you are solving. Everything else will come in the incubation process.
The final form of financing is... No external financing and, basically, self-financing. Bootstrap is tightening your belt and funding the project with your savings. This is the way for ideas that don't require a lot of specialist competence or an aggressive marketing campaign.
It indeed is a difficult road because it requires a supply of cash, but it gives you the prospect of the most significant financial benefits because you don't have to give anyone 30-50% of your profit.
However, the founders' determination catches my eye the most in self-financing projects. Your everyday work ethic is usually different if you respond with your own assets than with an investor's 2 million financial cushion.
I love bootstrap startups the most because no one's as ignited as they are. I’m not saying that well-financed entrepreneurs are spoiled (although sometimes they are), but self-funded CEOs are surely quite inspiring in their daily effort.
What funding should you choose, then?
Choosing the right financing path is one of the most critical decisions for startups because it determines the nature of the entire project. Who you go to for money will affect the pace and atmosphere of your work, the scope of responsibility, the number and nature of meetings, or even the place of work.
What's more, not only choosing the type of funding but also the proper organization or person inside the path is of great importance.
So if you are still wondering and want to consult your situation with us, write to us. We are happy to listen, talk and advise.
Jakieś zakonczenie na call to action - odwołanie do tego ze mozemy doradzic gdzie najlepiej szukac fundingu w danej sytuacji firmy