Starting a startup is a process full of challenges, and one of the biggest difficulties faced by entrepreneurs is raising funds. Therefore, having a well-structured plan is crucial to ensure that your company can grow and establish itself in the market.
In the current scenario, investors are more cautious and want to see the true potential of the startup before the financial investment. It needs to prove that its solution effectively addresses a market need and has scalability potential. Thus, it needs to attract the first customers to attract good investors.
In the so-called startup winter, we no longer see investments in an idea only in PDF. It is necessary to already have a minimum viable product and some active customers so that the market believes that your money will bring you returns.
During this time, the entrepreneur will have to finance his own venture — this is what we call bootstrapping, or self-financing. When you finance yourself in the early stages of the journey, you show the investment market that you believe so much in your business that you are taking out of your own pocket what you need to start. Of course, this has its downside: good ideas can die due to lack of resources, as not everyone can sustain themselves.
Another common path is to seek funding from friends and family, the so-called FFF investment (friends, family, and fools). Although it can be a quick solution, it is important to formalize all agreements and clarify the risks involved, as well as ensure that this investment does not harm your cap table with a very high equity participation.
When the startup needs funding for traction, that is, to attract more customers and hire sales and marketing teams, angel investors come in — individuals who invest their own resources in startups in exchange for equity participation. They usually are interested in early-stage projects with high growth potential but also high risk.
At this point, there is also the possibility of obtaining government-subsidized resources, an excellent source of revenue without giving up equity. Financing with venture debt, which can be risky since it involves loaned funds, is also an option.
From there, the venture capital market is already eyeing promising startups, those showing good sales results that may soon reach break even and move towards scalability. This moment occurs when the startup is showing month-over-month growth rates, both in revenue and new customers. It is also when it needs to enhance the product, expand the team, and establish governance.
At this stage, venture capital is the best place to seek investment for growth. Another option is to seek companies to sell participation in exchange for opening doors to their clients, or even selling your product to them.
From now on, it is necessary to focus on the direction strategy, where you want to take your business and what is the path of your exit. Raising resources for a startup requires strategy, planning, and a clear understanding of the available options. The key is to know well the needs of your business and evaluate which sources of capital are most suitable for each stage of development. By combining different approaches, it is possible to build a solid financial structure and ensure sustainable growth of your company.
