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Most startups fail. There are many reasons why this happens, from a lack of market need to poor marketing techniques. According to CB Insight’s analysis of 101 startup postmortems, one of the biggest reasons for startup failure is that they run out of cash.
You could have the best idea in the world, a solid marketing plan, and a talented team. But if the money’s not there, you’re not setting your business up for success. Of course, securing that funding can be a struggle in its own right.
Where do you look when you’re in search of capital to fuel and sustain your startup? We checked in with Drew Johnson, the founder and president of Rapptr Labs, to find out. Drew has successfully established several businesses and works with startups on a daily basis, and during his career, he’s learned all about what it takes to secure the funding necessary for starting and keeping a business going.
Rapptr Labs, Drew said, was self-funded, using the money he made from selling his previous business. But when he was younger and looking to establish his first startup, that cash wasn’t yet available.
In order to establish his business, he tapped into his personal network of extended family and successfully employed friends.
“It’s a double-edged sword,” Drew said. “You have passionate people who want to help you, who will give lots of good advice and are willing to help. But you have to be aware of the risks, too. [If it doesn’t work out] you’re not just damaging relationships with investors but also people close to you. You have to be clear about the risks before you can enjoy the benefits.”
In his case, it was a positive experience — the venture was successful. However, it’s important to bear in mind that that won’t be the case with everyone, and you’ll need to be upfront with people close to you about all the possible scenarios should you choose this route.
What do you do if you don’t have a network of friends and family members able and willing to offer you funding?
“It’s a harder road, but it can be done,” Drew presumes. “Some people see it as an impossible task if you’re not well-connected, but that’s not true if you’re willing to commit and put in the work.”
One essential resource for startup founders is angel investors. Angel investors provide seed funding for startups, usually in exchange for equity. They can be wealthy individuals or groups of angel investors. Accredited investors must meet a certain income and/or net worth threshold as defined by the Securities and Exchange Commission (SEC).
To find an angel group that’s a good fit for your startup, Drew advises founders to search for investors who specialize in specific regions, demographics, and other matching criteria. There are also general groups that you can contact via their websites or through LinkedIn. Other platforms such as AngelList, Crunchbase, and Crowdfunding are also good places to look.
“Think of it like applying for a job,” Drew suggested in regards to how to search and attract investors. “It’s a question of how you’ll stand out if someone’s shuffling through thousands of resumes.”
In order to set yourself apart from others in search of seed capital, Drew encourages business leaders to invest in a good pitch deck, something that would-be investors can read in just a couple of minutes, that incorporates a strong message and different types of media, such as short videos. It should also include basic information, such as the details about the opportunity, the size of the audience, high-level financial statements, and what makes your product different from those of competitors.
Additionally, you should have an elevator pitch, a classic 60-second message about what your idea is in a nutshell, along with a detailed business plan for potential investors to review after your meeting. “That’s not just important for investors but also for running a successful business,” Drew explained.
Drew also recommends showing a clickable prototype of the product. “This shows that your idea isn’t just a pie in the sky — you’ve actually designed it,” he noted.
It can be difficult to attend networking events during the pandemic — although once it’s more feasible to meet in person, they can be enormously helpful in terms of meeting and mingling with investors — but there are plenty of virtual alternatives, such as digital networking events and searching on LinkedIn.
“It's just a matter of putting in the effort every day,” Drew mentions.
Make sure you research all potential sourcesof funding: the amounts of money they generally provide, the prototypical investments in their portfolios, and when they tend to get involved with the startup process. This will help you gear your pitch deck and overall pitch accordingly.
In addition to networking and angel investors, consider alternative routes, such as pitch competitions, Kickstarter and other crowdfunding campaigns, and more. These can be a bit riskier (as in they’re less likely to pan out), but if successful, they can provide large amounts of seed money to get you started.
Although Drew and his businesses have had plenty of success, that doesn’t mean he hasn’t learned lessons along the way.
“We grew over 8-9 years,” he mentioned. “Could we have done that in 3 or 4? If we had actually put in the effort to make that money and connections, who knows what we could have done. If you have the right bandwidth and team, I would be as aggressive as possible.”
At the end of the day, it’s important to remember that securing investments is never easy.
“It’s really a daunting process,” Drew noted. “I’ve seen it take clients months and months and years and years. What sets the successful ones apart is they never gave up. Day after day, month after month, they kept putting in the time. It’s very, very possible — you just have to find the right fit.”
Want to learn more about starting a successful business? Check out What Happens After an Idea: How to Pitch an App Business Plan.