Believe it or not, it’s actually harder than ever for startups to secure early-stage funding to develop new products. That’s despite all of the hype surrounding options like peer to peer lending, initial coin offerings, and the various incubator or accelerator programs that now dot the landscape. The biggest reason for it is the fact that investors have all but stopped pouring funds into mobile development or software-as-a-service (SaaS) startups in favor of an all-in strategy with a small cadre of market leaders.
None of this is to say, of course, that a software startup has nowhere to turn for funding. On the contrary, there are still early-stage investors with money to spare – it’s just more of a chore to get to a yes on a finance deal. To that end, here’s a guide that covers everything you can do to make your software startup stand out to potential investors and secure the funding you need to make your fledgling business a thriving enterprise.
Create an Irresistible Pitch
The simple fact is that investors have neither the time nor the desire to figure out what your startup means to do and why that matters. For that reason, it’s essential that you do every bit of the legwork for them in advance. That means creating a short, laser-focused pitch that tells the story or your startup. It’s best if your pitch is shorter than ten minutes long, as that’s the maximum amount of time you’re likely to get in front of an investor.
Once that’s done, practice your pitch. Practice it on your partners. Practice it on your siblings. Practice it on anyone that will listen. Then ask for brutal honesty in return. Look for the parts of your pitch that seem to lose the listener, and remove them. Also, make sure that when you’re done telling your startup’s story, you explain exactly how you intend to make money for the investor and what their exit strategy will look like (a sale to a bigger company, and IPO). Never lose sight of the fact that making money is all the investor really cares about, not your startup dreams.
Create the Right Appearance
Another vital part of securing startup funding is to make sure that you appear to be a safe bet for investors. To begin with, make certain that your personal credit is impeccable. If it isn’t, no credible investor will trust you with their money. This is especially true if you’ve taken on debt during the bootstrapping phase of your startup. If you can demonstrate that the business is already making enough money to pay any initial debt, that’s a big plus.
With your financial house in order, you should prepare your personal credentials to make them attractive to investors. By that, I mean securing industry certifications in your chosen field, and make sure that you have enough experience that’s relevant to the work your startup aims to do. If possible, you might even consider working toward an MBA online, because it will signal to investors that you’ll be just as good a business steward as you are a technology innovator – and that increases your odds of getting the funding your startup needs.
Pre-Develop Customer Interest
One of the most appealing assets a startup can have in the eyes of investors is demonstrable market interest in the product they aim to develop. For example, consider the AR startup Magic Leap. They raised a total of $2.3 billion in financing before ever having a working product. They did it on the strength of their idea and the massive amount of interest it generated both in the press as well as among consumers.
Magic Leap is living proof of the reality that social proof is now just as important as your startup’s actual track record in convincing investors that you’re a good bet. At the very least, getting mentioned by important investors on social media increases your startup’s exposure to others in their peer group, which expands your opportunities to secure financing. Of course, the Magic Leap example also teaches us that your startup had better produce results – so don’t let your social fame get in the way of doing the hard work it will take to succeed.
Don’t Fear the Word No
The last and most important thing you can do to help your startup secure the funding it needs is to let go of the fear of rejection. The reality is that there’s almost no chance that you’ll find a willing investor right away, and you’ll likely face multiple rejections in the early going. The key to success is to not let the setbacks bother you. Instead, treat each rejection as a learning experience. Ask questions. Mine the investors you meet with for as much insight as time allows. They may point out a deficiency in your plan that you hadn’t thought of. Remember, the typical investor hears innumerable pitches. If they’re concerned about something, you should be too.
To sum it up, don’t give up. Perseverance is the most important trait of any successful entrepreneur, and your passion for your idea will be just as contagious to the investors you pitch. All that you need to do is eliminate any weaknesses in your presentation and find an investor that’s a good fit. If you’re lucky (and good), that will happen no matter what the odds. If you take the advice spelled out here, though, those odds should be a little more in your favor.