American Dream

Best Practices for Startup Funding: 5 Tips for Launching Your Idea

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Are you ready to receive startup funding for your new venture, but have no idea where to start? We interviewed an experienced startup owner and an investor to find out what they did to get fledgling businesses going and what they look for when choosing potential investments.

Here are their five best tips to help you get your big idea off the ground:

1. Create an Idea Worth Buying

“Raising funding is hard,” explains Jody Porowski, CEO of Avelist. “Make sure you are actually selling something worth buying!”

But how do know when you have a great idea? Doug Nordman, who’s been a member of Hawaii Angels since 2007 and has invested in more than 10 new businesses with Blue Startups, says, “When you ask detailed questions of your prospective customers, find their pain points, and solve their problems.”

“Make sure your pitch expresses to investors that it’s not a big risk, and that the likelihood of you giving them a return on their investment is high,” Jody suggests. Investors want to know their money will be put to good use.

2. Launch a Minimal Viable Product

You don’t have to spend a lot of money to get your idea rolling. Start with the bootstrapping technique, aka self-funding, and launch your minimal viable product (MVP) as a way to test the market. “The bootstrapping technique is great for building lifestyle businesses, and entrepreneurs can grow their revenue 20–50 percent per year,” says Doug.

If you need additional funding while you’re vetting out your idea, today’s entrepreneurs can tap into a wide variety of crowdfunding sources, accelerators, and angel networks. “Products can be pre-sold on sites like Kickstarter or Indiegogo, and fundraising campaigns offer more reach than ever before,” he adds.

3. Leverage Your Network

Even as a first-time entrepreneur, Jody found it very difficult to “find an initial investment because investors are obviously more confident in entrepreneurs with experience and a track record.” But don’t let this relative lack of experience stop you. You can simply rely on your existing personal network to find your first investors.

“I started out emailing most of my address book (BCC-ing everyone), telling them about this new company I’d started, and asking them if they, or any of their friends, were interested in making an investment. From there, I met friends of friends and networked my way to investors,” she says.

4. Use the Right Websites

Be prepared to understand the startup funding process by learning everything you can. Most of your education can simply come from reading about tech investment from the blogs of popular investors and entrepreneurs.

This is how Jody initially educated herself. She also “found LinkedIn, AngelList, Mattermark, and CrunchBase to be useful websites for finding out who’s who in the investment world and what type of companies were receiving investments.” If you’re looking for angel investors specifically, Doug recommends Angel Capital Association and AngelList

5. View Startup Fundraising as a Relationship

Investors aren’t going to read your mind, so learn to be bold and ask for what you want! Fundraising is driven by relationships, after all.

“If I see an investor at a networking event, they are clearly there to meet people as well, so I go up to them and introduce myself and often ask if I can buy them a cup of coffee later that week or month,” says Jody. “Finding an investor for your company is really about finding the right fit—the right investor for you and the right investment for them. It takes a lot of research, meetings, and rejection to ultimately find the right fit.”

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Carrie Smith is the financial writer and the owner of CarefulCents.com, a site that helps creative freelancers discover the art of making a living. In May 2013 she quit her full-time accounting job to pursue entrepreneurship. She's been featured in The Huffington Post, Glamour Magazine, Yahoo! Finance and many other business websites. Find her on Twitter at @carefulcents.