Dispelling common myths about funding

Introduction

Imagine this: You’re watching a thrilling TV show like Shark Tank, where entrepreneurs with big dreams secure massive amounts of money to turn their ideas into million-dollar companies. It’s a dazzling spectacle with investors in fancy suits, sitting behind a grand desk, eagerly handing out piles of cash to deserving entrepreneurs. But the real world of startup funding is far from this flashy fantasy.

In this article, we aim to debunk the common misconceptions surrounding startup funding and present you with the real picture.

Myth 1: I need to raise money before I begin working on my startup

 Reality: You should work on your product and gather traction before seeking funding.

Building a prototype or initial product, creating a website or software, and finding potential users have become more affordable and more accessible than ever before. Having a tangible product and an engaged user base gives you a competitive advantage. Instead of merely presenting a pitch deck in search of funding, you become an entrepreneur with a startup already in motion.

The best founders don’t immediately focus on raising funds to build it. Instead, they prioritize creating the first version of their product, even if it’s a simple one, and acquiring some users. Once they gain traction and see value being created, they start thinking about raising capital.

Example: Flipkart, India’s first e-commerce company, started in 2007 as an online bookstore catering to the specific needs of Indian customers. The founders bootstrapped the venture and only sought external funding after it gained attention from customers. The subsequent success of Flipkart is well-known.

Myth 2: I need to impress investors to raise money

 Reality: You don’t need to impress investors, but you should aim to convince them.

Investors are intelligent individuals who don’t go for fancy pitch decks or rehearsed lines. You can effectively convey your vision to investors using plain and simple language. There are no magical words or gimmicks that will impress them. If investors aren’t impressed by your product and don’t see a Product-Market Fit, it may indicate that your idea needs further refinement.

Example: In 2007, Brian Chesky and Joe Gebbia needed money to pay their rent in San Francisco. They decided to rent out air mattresses in their apartment, creating a service they called “Air Bed and Breakfast.” While the idea sounds unimpressive, this small experiment eventually led to the creation of Airbnb, which disrupted the hotel industry.

Myth 3: Raising money is complicated, slow, and expensive 

Reality: Closing a pre-seed or seed round can usually be completed within 8 to 12 weeks. Seed rounds often involve minimal or no legal expenses, as the documentation is relatively straightforward.

When you read about fundraising in the press, you might get the impression that it involves raising enormous sums of money through large-scale rounds from prominent venture capital firms, accompanied by significant legal fees and lengthy processes. However, the reality is quite different.

The media often highlights series A or growth rounds because they make for more sensational stories associated with big numbers and high-profile investors. The initial rounds of funding that companies raise do not get media attention, as they are usually much smaller in scale.

Example: In 2010, Zomato raised its first angel funding round for just Rs. 10 lakhs. This modest amount allowed them to kickstart their operations and lay the foundation for their growth.

Myth 4: I am going to lose control of my company 

Reality: Understand that there are ways to navigate funding arrangements while maintaining control. Bootstrapping can help retain control but also limits your growth potential.

You can seek guidance from mentors and advisors who can provide valuable insights on the appropriate funding option for your organization, the optimal timing to seek external investment, negotiating terms, leveraging strategic investors, and striking a balance. Even if you decide to give up a portion of equity, you can still negotiate for control and access to pertinent information. Strategic investors can bring more than just financial support to your startup. They can also provide valuable connections, industry expertise, and guidance to accelerate your company’s growth and success.

Example: Mark Zuckerberg founded Facebook in 2004 while studying at Harvard University. Despite receiving seed funding, Zuckerberg maintained a significant stake in the company, allowing him to retain control. He currently serves as the CEO and holds a controlling interest in Facebook.

Myth 5: I need a fancy network to raise money 

Reality: Investors are primarily interested in the value and potential of your product or idea rather than external factors such as your network or educational background.

If you are creating something people want, investors are not concerned about your educational background, work history, or social connections. It is not advisable to let someone with an impressive network represent you, as investors prefer to connect directly with the founder.

Example: WhatsApp is an example of a startup that secured funding without relying on a fancy network. When they began in 2009, they did not have influential networks in the technology industry. However, they were able to attract investment based on the strength of their product and their compelling vision.

Myth 6: If investors reject my startup, it’s not good enough 

Reality: Rejection is a common experience in the startup world. Despite having a great product, investors may not choose to invest in your venture. As a founder, it is crucial to maintain confidence in what you are building and persevere despite setbacks. The right investors will see its potential.

Example: Melanie Perkins, the founder of Canva, faced more than 100 rejections before finally securing funding for her company. Canva is very successful and valued at approximately $16.01 billion presently.

So, as you navigate the world of startup funding, keep these truths in mind. Focus on building a strong product, gaining early traction, and demonstrating the value you can create. Be persistent, embrace rejection as a learning opportunity, and seek out the right investors who align with your vision. With determination and a solid foundation, you can overcome the challenges and secure the financial support you need to turn your startup into a thriving business.