You’ve got an idea that you’re excited about. You’ve talked about it with your friends and family members. You might have even quit your job to start exploring the possibilities of entrepreneurship. You’re on the verge of getting your company off the ground, but in order to do it, you need startup capital, and you can’t front all the money yourself.
Your natural inclination is to go out and start seeking funding as fast as possible so you can build some momentum for your business. That level of passion and enthusiasm is admirable, but if you start seeking funding before you’re ready, you could end up wasting your time and building toward disappointment.
Before you go out to seek funding, whether that’s from an angel investor, a venture capitalist, or through a crowdfunding platform, make sure you’ve satisfied all the requirements of this checklist:
· A completed business plan. This is the first item on the list because it is, by far, the most important. Without a business plan, you can’t have a business; it’s the foundation on which your enterprise will be built. Accordingly, it may contain some, all, or none of the points below, so keep that in mind when you put it together. Your goal here is to present an overall summary of what your business is and how it’s going to make money.
· Market research. Market research is the verifiable data that demonstrates the need and viability for your idea. Without it, your idea may only be good in theory. You might have to pay to get access to the data you need, or perform some research yourself, but you need to have this numerical grounding if you want to prove your potential worth.
· Financial models. These should be a natural part of your business plan, but don’t underestimate the level of detail required by most savvy investors. You’ll need full spreadsheets of projected costs, acquisitions, sales, and revenue, including your profit margins, growth rates, and when you expect the business to become profitable. This is going to be the proof that your business can actually make money.
· 1-, 3-, and 5-year plans. Don’t focus exclusively on how you’ll build your business from the start. You’ll need to chart out your projected growth over the course of the first year, the first three years, and the first five years. Most investors want a long-term solution in a business with staying power.
· Potential customers. Your market research should prove a theoretical customer base for your idea, but potential customers will drive your point home. If you can acquire at least a handful of testimonials from your prototype, or a major client that’s interested in your idea, investors will be much more interested in working with you.
· Real ability. You’ll also need to make sure that you’re capable of handling the first stages of development and business growth personally. If you have years of experience in the industry or other proven credentials, you should be in good shape. Otherwise, you’ll need to undergo training or secure outside resources to help you along.
· Existing investment. It looks good to potential investors if you already have some skin in the game. Take whatever savings you can spare and gather up some initial capital from friends and family to show investors you already have some financial backing.
· A brand. Typically, your brand will come into play during the marketing phase of your business’s development rather than the fundraising phase. However, a strong brand can help sell the viability and character of your business to potential investors. It’s a demonstration of identity that can concisely and creatively drive your idea home.
· A goal. Before you start asking for money, you need to know exactly how much money you need and why you need that much. There’s a big difference between saying “I need money for my idea” and “I need $10,000 for equipment, $15,000 for an office, $20,000 for a first run of products, and $5,000 to start marketing.” The latter shows you have a plan, and lets your investors know exactly where the money is going.
· A payoff. Last but not least, make sure you have a specific payoff in mind for your investors. For a crowdfunding initiative, that might mean having sample products or rewards for different investment levels. For individual investors, that might mean a projected payout after a certain period of time has passed.
If you’re missing one or two items, it’s not a deal breaker, but be sure you satisfy most of the items on this list before you head out. If you can do that, and your idea rings true with the right people, you should have no trouble getting the money you need for the next stage of your enterprise.
For more content like this, be sure to check out my podcast, The Entrepreneur Cast!