How Entrepreneurs Should Approach FundingBy Amanda Lewan on February 10th, 2013 /
While attending Michigan’s ACE competition last week, I listened to several investors and business incubators from across the state speak on funding. A similar message came across loud and clear from investors: entrepreneurs needs to change their approach to funding.
Entrepreneurs know they need resources and capital right away to grow, and they often begin to seek funding early on. Instead of focusing heavily on getting funding, entrepreneurs should focus their efforts on increasing sales, listening to the market, and seeking creative capital first.
What is the first thing investors want to see? Valuation. Valuation is determined off of a number of factors, but one of the first things they look at is sales. What are your sales? If they are currently low, what are your near future options? Entrepreneurs should focus on finding and selling to their first big customers. This will show investors that your company knows how to sell to their market.
Listen to the Market
Don’t spend too much time building the solution. Get out their and talk to those who know the problem. Listening to your market is just as important as building your product, and you can’t have one without the other. Investors urge technologists to start talking and start listening to their market in order to build the product that their customer will want to purchase. This needs to be included early on in order to focus time and resources efficiently.
Seek Creative Capital
Have you tapped into all your networks for capital? Before approaching an investor try raising as much funding as you can on your own. ACE speakers shared some creative insights from local startups. Here are a few to consider.
- Tap into your network. Someone you may have worked with before may know someone else interested in supporting your business through partnerships, sponsors, recommendations, anything that can contribute to your growth. Talk to your network and spread the word.
- Build strategic partnerships. One local startup needed to attend a vital conference on the west coast. They made a deal with the exhibitors to connect them to a sponsor in order to attend for free. What can you use within your network as leverage?
- Microloans, awards, and grants. Michigan has plenty of funding opportunities. Business incubators like Ann Arbor Spark offer microloan funding. Check out Spark’s video on how to apply for funding. Another good program for microloans is Kiva Detroit. Keep your eye out for annual business plan competitions across the state, too.
- Try crowdfunding. We’ve got a great guide on Michipreneur that can help you get started with your crowdfunding campaign.
I was surprised to learn from ACE that norm is to not receive funding from an investor. Though there are plenty of benefits that you receive along with funding from an investor, including strategic business opportunities and mentorship, raising money and making sales will show that your company is capable of building out a successful business.
What creative funding strategies have you tried? We’d love to share more ideas with other entrepreneurs.