Start Up Series #5: When To Take The First Funding

Continuing our efforts to help Start Up and SME owners in their brand-building projects, we have curated a few articles that we think will be useful for them. These articles are going to be published as a series on our platform. Here’s the fifth one.

Once the product has been identified, its features locked, its deliverables listed, the market identified and the positioning decided, it’s time to get FUNDED. Are there stages of getting funds, are there loans, should you get funded at all?

  1. The First Loan

The first money-pump was a personal investment from your own savings or friends & family. This could be called in as a primary funding but is not so because it is only a loan and there are a lot of implicit costs which aren’t maintained in this. The loan from that Uncle who you never met earlier is just a loan which you will give back, maybe at an interest or helping his kids with their entrance examinations.

KNOW THIS: This stage of money-pooling to make the product is not considered being funded, it is only a loan and should be treated as such.

  1. The Critical Mass

The time to start thinking about funding is when the product reaches a critical mass. Knowing your critical mass means homework on the product and addressing the other requirements as discussed previously in the series. The critical mass for each product, each idea is different and there cannot be a formula for it. However, it is safe to assume that it should be attainable within the first 6-8 months of launch so that early investors are attracted to assume a quick return for their part and for you to develop the product further for the long haul.

KNOW THIS: Not knowing your critical mass is the biggest mistake which you could commit and is not a whimsical number. It comes from being committed to the product development and knowing what problem it is addressing.

  1. The Funding Types

KNOW THIS: Essentially it is all about internal vs. external investors and at what stage do they invest in. The later they invest, the lesser their stake due to them taking lesser risk at each subsequent stage.

  • 4. Funding: To Take or To Not Take

The answer seems obvious, to take it at the first possible opportunity but this shouldn’t be the case. Knowing the reason for taking in external funding is as important as taking the time to identify the Start Up’s core strengths in the product. Consider the following when the critical mass is reached.

  • a. Can you afford to go on your own?

Taking up external funding means letting out stake, which means you lose a little bit of the ownership of the Start Up, the dream with which you started out. It’s a different matter, if the dream is financials. But if the dream is the product and its impact then you may want to hold on to the decision of taking on any outside funding.

  • b. The Funding Partner

When taking in external funds, you’re not just taking on some cash or cash equivalents for some physical goals. You are interacting with a person and his skill sets. Would you be better off with the skills this person brings or do you just want the money and be free to take in all decisions? Is the investor very well networked to be able to make the product have a better impact? Is the investor good enough to be the sounding board that all products must go through?

KNOW THIS: Attracting & taking up investments is not tough, it is keeping the ethos with which the Start Up has been started intact.

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