How Raise Investment For Your Tech Startup
Bulking up on a startup establishment goes far beyond a pen-and-paper idea sketch. It requires actual capital to convert your venture into a profitable asset.
And receiving funding is all about reaching that objective. This guide discloses all the peculiarities of attracting investments for your IT startup, from funding rounds to mainstream financing means and budget forethought.
Every startup financing passes through five common rounds (stages) disclosed below.
This stage relates to the period when startup owners are pulling out their ideas from the paper. They serve as investors for their own ventures themselves or ask close friends for financial support.
This stage is proven to be a startup’s growth. The challenge here is to engross angel investing to address basic startup needs, such as premise renting, technology company business plan, specialists recruitment, and prototype development. The capital raised at this stage varies from $100K to $250K.
At this stage, you stake startup credibility and initial success. The investors engaged in this round are the result of VC firms (venture capital firms).
Once the startup has proved its validity (settled clients base, steady revenue stream, tested business model, and other KPIs), entrepreneurs can step into a series A round for further advancement.
This round can be symbolically called “from startup to scale-up.” The focus is around broadening the market and fortifying the success that you have.
This funding stage is applied to grow the business so that it can bridge the gap between company capacity and increasing demand.
Now, you’re a million-dollar corporation and demand equal financing. The capital is raised from VCs, private equity funds, and late-stage investors. It’s all around concentrating on expanding and getting on the IPO path (initial public offering).
This approach speeds up the startup capital raising due to its availability. It stands for a way of augmenting funds for a project by making them online to a high number of people.
There are a wealth of crowdfunding platforms (e.g., Kickstarter, Fundable, Indiegogo, etc.) that will allow entrepreneurs to test the waters and promote their concept over the network.
Business accelerators (or incubators) are like the public-relations manager for celebrities. They aim to create a favorable environment to spur startup growth.
These actions involve business mentorship, lecture organization, and sharing insights to prepare the young companies for the seed funding situation.
These programs are made to stimulate business growth by assisting in establishing valuable connections rather than providing real funds.
Venture capital is a bit of a controversial notion for startup owners. On the one hand, they impress founders with their shapely market instincts and ideal due diligence fostering startup success.
But on the other hand, they treat venture capitalists as sheep that are insecure about newborn funding ventures.
The truth is that VC firms control other entrepreneurs’ money and can’t afford to take risks more than they’re allowed.
That’s why venture capitalists tend to fund trustworthy ventures with a business development strategy and an MVP version of the product.
Angel financing is a lifeline for newly created companies. “Angels” are successful entrepreneurs willing to buy your enthusiasm for the sake of an equity stake for returns.
But, typically, they tend to sponsor ideas based on their intuition, passion, and creators’ honesty, neglecting possible difficulties.
The reason is that a big part of angel investors have already walked in founders’ shoes, are familiar with risks, and are ready to pull them out.
Here are a couple of points you should consider when matching up the budget for IT startup advancement.
When estimating the budget for your product development, there’re a number of factors to mull over, and the platform preference is one of those matters.
Your budget will differ whether you decide to deploy your software on one or several platforms or kick in a cross-platform software solution.
Business objectives and profit
The final purpose of every venture is to gain profit in the long run. Hence, every entrepreneur must delineate plain profit margin goals before pitching into startup advancement. Additionally, planning on revenue will allow you:
- Define the time slot required to pay off the investments
- Appropriateness of business funding in future
- Reinvesting possibility in more sophisticated features
App’s features complexity
The number and the complexity of the product’s features you would plan to add (including 3rd parties integration) directly contribute to software development costs.
That’s why it’s critical to jot down the list of desired functionality to be aware of future expenses. Moreover, an indicative (or clear) set of requirements is needed when communicating the project details with your tech partner. Thus, the team will be able to provide you with a personalized product estimate and a cost-efficient approach.
Choice of IT vendor
The IT consulting rates vary depending on multiple factors, such as the company’s size, expertise, location, etc.
At the initial stage, it may be unusable to recruit in-house specialists. This type of cooperation involves additional expenditure (rent, taxes, buying software/hardware, etc.) that most startup companies can’t power through. You can either work with freelance developers or turn to software development outsourcing.
Working with independent contractors is a budget-friendly but risky and tricky option. In contrast, cooperation with an IT outsourcer brings significant benefits in money, quality, expert choice, scalability, and technologies used.
Raising capital for an upcoming startup company is a long and conscientious procedure. In order to succeed, it’s vital to devote your time and effort to develop a working business plan, intricate elevator pitch, and vibrant app MVP.
In addition, being a creator entails strong speaking skills to induce stakeholders that your venture is worth capital.
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