funding your startup - Dolphin Micro, Inc.

FUNDING
YOUR
STARTUP
THE COMPLETE GUIDE
DO YOU HAVE A
FANTASTIC IDEA FOR A
STARTUP?
L
et’s say you’re planning to build a new social network. Here’s
some bad news: building and scaling a web app—and turning it
into a real business—isn’t cheap. If you’re a developer, great! If not,
to do the work for free in exchange for a chunk of the business or b) hire
someone to build it.
the cash to get your idea off the ground. Once you’ve got a real product
and a few users, you’ll also need money to scale it.
This guide gives you the inside information on how other startups have
turned their ideas into successful businesses and lays out a roadmap
that will get you there too.
STARTUP FUNDING
HAPPENS IN FOUR
DISTINCT PHASES.
PHASE ONE
BY HOOK OR BY CROOK
YOUR GOALS:
Test your solution with real people to see if they’d
use and pay for it.
Before you ask anyone for money or invest any of your own, you need to know
will address, and then sharing the idea with the right people.
“The Lean Startup” by Eric Ries is THE resource for teaching you how to validate
your idea. Regardless of how you do it, it’s going to require an investment of
either of time or money, and often both.
$
THE BILL:
Anywhere from $0 to $100k
$
WHERE TO GET THE CASH:
SELF-FUND
Many founders live cheap and stockpile anywhere from $10k to $50k,
company, postpones asking other people for money, and keeps your
expenses low with no loans and interest to pay.
SAVE CASH AND DO IT YOURSELF
If you’re a programmer, and your project is digital, building it yourself will
cost you time instead of money. Do you have the time to give? Also ask
SHARE-GET A CO-FOUNDER
knows things and people you don’t, is willing to commit time to the idea,
FRIENDS AND FAMILY
Asking friends and family for money is outside most of our comfort zones.
You may be surprised, however, at how quickly you can scrape together the
money you need from a few enthusiastic people you already know. Friends
and family already trust you, and they’re often more motivated by a desire
to support you than to get their money back quickly.
Think bigger than your friends’ wallets. Regardless of whether your friends
have the cash, ask if they know anyone else who might. You never know
who has a rich aunt, a boss, or a “friend of a friend” who’ll be willing to pony
round” to get rolling.
FIND AN ANGEL
Angel investors are wealthy people who invest in startups in exchange for a
your local startup community and ask around. You may also want to check
out online sources like AngelList (Angel.co) and Gust.
Angels are usually successful business people that bring insight,
relationships, and credibility to your startup, as well as their checkbook.
They also bring their opinions on how you should spend their money.
Evaluate potential investors holistically and choose wisely. They’ll be with
you for a long time.
PHASE TWO
CASH REQUIRED
YOUR GOALS:
Get some customers.
Once you’ve built something tangible and demonstrated that it meets a real
customer base.
Most people think, “Once my brilliant idea is built, it will go viral.” Unfortunately,
it only works like that in the movies. Most products die as soon as they’re
launched because the founders run out of money from failing to plan for
customer acquisition and onboarding.
You need to expose people to the idea (marketing and sales) and make it easy
for them to try it (onboarding). That requires additional development and time
dedicated to customer acquisition. It’s hard to do all that for free.
$
THE BILL:
Anywhere from $50 to $250k
$
WHERE TO GET THE CASH:
CROWDFUNDING
If you developed a fan base in Phase 1 or from a previous project, a
crowdfunding campaign may work.
Novel or sexy consumer products typically raise the most money on sites
fewer than 50 percent of companies that seek crowdfunding actually meet
their goals. Failing at crowdfunding can also make it harder to raise money
from investors later. Angels and VCs often feel if your idea isn’t strong
enough to raise capital in the open market, it’s not a safe bet for them either.
ANGELS
If an angel helped get your idea off the ground, don’t be afraid to ask them
for more money and have them introduce you to their friends. Angels
tend to hang out with others, and this is where your existing investors’
connections can come in handy.
GET A LOAN
business loan is always an option, but a risky one. Most banks require a personal
guarantee, which means that even if your business fails, you’ll still owe the money.
SEED FUNDING COMPANIES
500 Startups and Founder Collective focus
aren’t just looking for great ideas or interesting prototypes. They’re looking
for a great idea backed by a great team and clear growth potential. Now’s
the time to have a business plan in order and a growing user base.
Be sure you have good answers to questions like:
• What is the real market for your product or service?
• How likely are customers to buy your product/service? How do you know?
• How are you promoting your business?
• Who is your competition? How will you differentiate yourself?
• What do you know about running a business, and how will you learn the rest?
• What are your biggest risks, and what will you do about them?
$
$
PROFITS FROM PHASE 1:
Did you make any money during Phase I? Most startups don’t, but if you’ve
reinvest that money in the company.
PHASE THREE
IN SEARCH OF SCALE
YOUR GOALS:
Develop a larger user base.
$
THE BILL:
$
WHERE TO GET THE CASH:
CROWDFUNDING
Didn’t try crowdfunding earlier in your journey? Now may be a good time,
users, fans, followers and supporters you have to reach out to, the more
likely you are to reach your goal. Be sure to develop a solid marketing plan
before your campaign launches (here’s a great article to get you started).
Get creative with your rewards, and be clear about how you’ll use the
money. If your users aren’t truly excited about the direction you’re going
with your product, they’re not going to fund it.
MORE ANGELS
original angel investor(s) and ask for more money. The more buzz and
growth you’ve generated, the more interested your angels will be in writing
bigger checks. You can also go back to folks who said “no” before because
you’ve got a proven business model now.
VENTURE CAPITAL
Venture capital is the Holy Grail of startup funding, but the harsh reality
age of a company backed by a VC is four years. Younger companies that
receive VC funds typically have a few things in common:
1. They can prove their business model works.
2. They can demonstrate their product or service meets a need that
users have and will pay for.
3. They’re run by people with successful businesses under their belts.
4. They have a clear plan for how they’ll use the money and how it will
result in growth.
If your company has at least three of the four things above, VCs might
be for you. If not, look for money elsewhere and focus on growing your
customer base.
PHASE FOUR
GO BIG OR GO HOME
YOUR GOALS:
Scale. Period.
If you’ve somehow managed to build a company with an exponentially growing
customer and fan base, take a minute to congratulate yourself. Very few
companies ever make it here. Now it’s time to go big. You’ve likely spent a lot
of other people’s money, along with your own, to get here, and everyone will be
getting antsy for a payday.
That payday usually comes in the form of an “exit.” Your exit may come in the
form of an acquisition, in which another company trades a pile of cash or stock
for ownership rights, or an initial public offering (IPO), in which the general
public trades a lot of small piles of cash for ownership.
For an exit to work, you need to scale dramatically and make a convincing case
that your company is poised for continued, explosive growth in the future.
$
THE BILL:
$1 Millions, $10s of Millions, or $100s of Millions
$
WHERE TO GET THE CASH:
SELF-FUND
grow. Just make sure you’re not limiting your opportunity. If you know
adding $10M to your company will return $100M, but your company only
VENTURE CAPITAL
product to the next level, it’s time to start seeking capital from VCs.
In a 2013 article for Forbes, market researcher Geri Stengel outlines some
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A target market of at least $1 billion.
The potential for very high ROI.
Substantial traction.
Personal chemistry, coachability and the potential to work well with the VC
GO STRAIGHT FOR THE IPO
straight to an IPO. Venture capitalist Glenn Solomon lists three attributes a
company must have to consider an IPO in a piece for Forbes:
• Predictability and visibility.
• Underlying growth potential.
• Vulnerability assessment.
In terms of growth potential, Solomon recommends thinking beyond the
$100 million mark and having a growth plan that gets you to $300 million
or more. If you’re growing fast enough and have a big market ahead of
you, that should seem a likely, even easy, number to hit. If it isn’t, rethink
your plans. “The IPO is not an end game,” he says. “A better analogy is that
going public is more like moving from college sports to the pros.”
THE MONEY IS
OUT THERE.
Growing a company is
hard. It also tends to
be expensive. The good
news is that the money
is out there. Don’t let
your dream die because
you’re afraid to ask for
it. Good ideas that solve
real problems with
persistent founders will
get funded. Hopefully
this guide will help you
the money you need.
About Dolphin Micro, Inc.
Dolphin Micro builds custom web and mobile software for
startups. Learn more or sign up for weekly startup tips at
http://dolphinmicro.com/startups.