When Is It the Right Time For A Startup To Raise Funds?
Climbing the ladder to a successful business – especially a startup – is a daunting task, with each step of the ladder filled with demanding tasks.
Tealfeed Guest Blog
Climbing the ladder to a successful business – especially a startup – is a daunting task, with each step of the ladder filled with demanding tasks. Being a successful entrepreneur requires right time to fun determination and the ability to take risks, and become a high flier in the race, but the decision about a startup’s funding is the biggest pain-point that can shake the determination of even the most strong-willed.
Decisions involving money are sensitive enough, and add a startup’s funding into the mix, the question of when is considered a good time to raise funding for a startup can haunt an entrepreneur’s dreams!
There is a thing like the ‘right time’ to raise funding for the business because when this important stage is hurried or delayed beyond a certain point, it can be wreak havoc for the business.
WHEN IS IT A WRONG TIME TO RAISE FUNDING?
Summing up a startup’s post-funding journey when the funding is hurried:
- A startup ends up raising a substantial amount of funding;
- Matches its expenses with this new found treasure;
- Spends heavily on a brand new office, more employees, new products and marketing;
- Finds itself unable to match its costs with the revenue generated;
- Cuts its spendings hastily; raises more funding;
- The cycle repeats.
Raising funds before the right time is like a stick of dynamite and the business never knows when this bomb may explode since it not only takes a toll on the startup’s expenditure but also hampers the execution and business management. When the sole focus becomes money management, the rest fades, and this is a slippery slope towards failure.
As a financial expert, I suggest that the startup must try to survive as far as possible without rushing into fund-raising and give the business to blossom.
This time would allow the entrepreneur to evaluate the strengths and weaknesses of the business, as well as their own strengths and what requires improvement. If the founder has sufficient funds, it is my advice to delay the plans for funding as much as possible.
A startup must also think twice before raising funds when it lacks the basic knowledge of how funds management works. Raising funds requires the business to prepare a business proposal, know its valuation, and know what the investors look in business before investing.
If the business is not aware of its target audience or have no consumer traction, it is better to delay the funding plans. Investors are also interested in businesses in which they see potential and wherein the demand is more than the supply. When the scenario is the opposite, the startup has no standing in the market, which increases the potential risk associated with the business. More the risk, the lesser the investors will invest.
Thinking about what the competitors are doing cannot help the startup in the slightest. Don’t spend your nights thinking about how much your competitors have raised. Every business has a journey and ROI.
WHEN IS THE RIGHT TIME FOR FUND-RAISING?
The right to raise funds is when you’ve given your startup sufficient time to grow on its merit. When the business has grown without outside influence, you can raise funds to expand your operations, hire a more experienced workforce and develop your product.
When the startup has found a reliable investor, whom the founder can trust, learn from, and brainstorm ideas, the business can strike the iron and raise funding. It will align the goals of the founder and investor and help the business in moving in the right direction.
Having a marketable product, technology to back it and a substantial consumer-base can also provide the startup with the right foundation to raise funds. Without these essentials, early-stage funding will only result in increased interference and decreased control over the business.
Business valuation is one of the methods to know where a startup stands. A financial expert can help the startup in calculating its value, preparing a funding proposal, and decoding the term sheet for investors.
Knowing where the startup places can help the entrepreneur in choosing the right time for their fund-raising and escape from making the mistakes many startups end up making and failing.
Tealfeed Guest Blog