Dodge These 5 Mistakes When Seeking Startup Capital
Dodge These 5 Mistakes When Seeking Startup Capital

Dodge These 5 Mistakes When Seeking Startup Capital

Startups never have it easy. Their journey is an arduous and painstaking one. Other than all the numerous challenges they face during the lifetime of their business, arguably, the most challenging one strikes in the beginning – that of acquiring startup capital.
 
Depending on the capital needs, a startup will find many options on the table. Eventually, they have to pick one and get things moving. Bootstrapping is one option some of the entrepreneurs like to consider for their startup. Make no mistakes, it does offer a few merits, in that it forces entrepreneurs to tread cautiously without making any rash decisions.
 
Either way, most funding methods have a degree of risk attached to them. This article is about understanding the risks involved and how to avoid making the mistakes that can adversely affect your startup’s run.

1. Ascertain The Accurate Capital Requirements

 

 

Knowing the exact capital requirement is quite important if you don’t want to be lead into delusional thinking. Entrepreneurs like to think that If they ask for a smaller amount, they may have a better luck acquiring it.
 
Sounds good in theory, but this approach backfires in two ways if you do implement it: firstly – investors will see that you’ve clearly undermined your startup’s capital requirements and would simply decline your request thinking you’re not serious about your startup.Second, even if you do succeed, there’s every possibility that the acquired capital would vanish in little or no time.
 
Then you’re looking at a very dire scenario possibly threatening the existence of your business. So it’s always better to accurately estimate your capital requirements and then make a pitch to the investors. They’re more likely to consider your application when you ask for a valid sum of capital.

2. Value The Equity Share

 

All investors like to have an appreciable share of equity. Entrepreneurs eyes can easily light up when they see their desired capital requirement approved. Still, they have to be careful in not giving up too much equity share to the investors. There are valid reasons for not doing so.
 
Startups are always tricky and you never know what circumstances may arise in near future. Imagine the scenario where your startup doesn’t go as per plans, you incur huge losses and that leaves you requiring additional capital to sustain the normal business operations.
 
In such a case you could be left with a meager ownership share, as your hold over the business dwindles. That’s why as an entrepreneur you have to value the equity and carefully approve a reasonable share to the investors.

3. Personal Credit-Card To Fund Your Startup

 

 

Thinking of funding your business with your personal credit card? Well, our humble advice would be – think again. Even if you have an all impressive credit card rating, there’s no reason to fall prey to the ‘worst-case scenario’.
 
Credit-score is just a rating provided by your credit-card issuers and is in no way indicative of whether or not you’re capable of funding your startup. Studies have shown that people who bank on credit card financing eventually end up in failure.
 
That’s why piling up credit as you attempt to realize your startup’s vision isn’t a good idea. Should you fail, which is highly probable, your personal finances could take a major blow and you won’t have any means to pay back the dues.

4. Be Wary Of Advance Fee Loan Scams

 

We’re all aware that there’s been a surge in the number of people seeking funds for their start-ups. That’s where some of the scammers have been attempting to cash-in. With Advance fee loan scams, entrepreneurs are guaranteed to get necessary funding irrespective of their credit history.
 
How these programs work is quite interesting. They initially ask for an upfront fee and once you pay that out, you can just expect to be waiting for the loan to be approved – well in truth, the loans never really happen.
 
The Governments around the world try to keep a close check on such programs, but still, the surreptitious manner in which they operate, some people do end up falling victim to them. So you should be ultra careful with these scams, and if you happen to get a hint of any suspicious activity, you’re required to report them to the security agencies.

5. Don’t Underestimate The Cash-Flow Analysis

 

 

Investors often take a keen interest in cash-flow statements and for good reason. They want to know how the money they’d be lending will be used by you. So you have to present a detailed summary of every pound and penny and where it’ll be spent in the daily business operations. Investors like to see you have a firm grip on everything.
 
Should they see you’re unsure at certain points, their decision to grant you the loan could be affected. Furthermore, it’s not very prudent to consider faking a cash-flow analysis. The more ambitious your idea, the more answers you’re like to have up your sleeves come the face-to-face time. So analyze everything and make an authentic cash-flow analysis that really convinces investors to help you up with the funds you’re seeking.
 

Capital-funding is a big deal and it’s something a business-owner has to prepare him/herself as best as they can. Knowing the aforementioned pitfalls should prove useful as you get ready to make a pitch to the investors.
 

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