It’s a common pitfall for entrepreneurs to believe that once they have a good idea, what they need next is to get well-funded in order to transform that idea into a business. As logical as it sounds, this is far from reality and in fact startups must go through a process of discovery before they should look for investment for the venture.
Here is the selected few important questions that an entrepreneur must answer before bringing an investment partner on board with share in equity. The startup founder must ask a bunch of questions from himself and his team and give honest answers to reach a decision.
Have you grasped the actual ‘Problem’?
Maybe you are looking at the problem from a wrong perspective. People live in a fancy world sometimes – sadly but truly – they share ideas without researching about the problem. The first step before jumping horses is to identify the problem, its size and its impact – idea for the sake of idea is not enough.
All you need to do is to research and talk to the people who have actually experienced the problem. Nothing stops you in doing that. Don’t talk to friends and family, but your customers – from whom you feel good taking money. If you are not prepared, investors will probably badly grill you on the occasion. So, make your foundation strong.
Your ‘Solution’ is the best – Fallacy
Not saying, that your solution is not decent, but have you validated it. Do you have a prototype ready? What face you will take in front of the people – who will invest in your idea – if you cannot show the feasibility of your solution. The practicality of the business idea has to be evaluated way before the idea is to be pitched to any investor. Take your time and evaluate your solution by asking yourself,
- Is this the best solution you can come up with? Maybe a better solution is out there but you have not explored it yet.
- Have you been successful in selling your product to customers – or at least the idea?
- If you have successfully sold your solution to customers, what feedback was given by them. Did they like it? Did they suggest improvements?
- Ok, you have sold it to few customers (may be your friends and family) but is there a good enough demand in market?
- Is your solution repeatable or easily copy-able? If yes, you are sadly in hot-water but you can turn around the chances of success even then, if your execution is best [we will talk about execution later – stay tuned to Clarity]
Are you ready to give away Equity?
To be honest, you should be mentally and strategically ready to give up the stakes in your company. You believe, you have the best solution in the market, but are you ‘able’ to do it.
Money is a wild-card in the equation of success. You can use it in any way – it’s up to you that how you use it.
So, ask yourself, if you are willing to give up the equity against what you get in return. Because, if you get the funding, sharing equity is part of the solution, not a problem (financially) as you will share the risk with the investors and they won’t let you sink. Think.
Can your idea scale?
You have a solution and you have successfully sold it to customers and you also have got positive feedback. Can you scale it up? Is it designed in a way that you can reach thousands and millions of customers? If not, maybe its not the money you want to raise, but revisit your solution and the business model.
Are you at a stage where growth depends on money?
It’s good to have money raised in order to burn the early-stage growth requirements. You have to be abreast with the competition and deliver on your vision, you cannot compromise on quality. High-growth companies mostly need the amounts, usually not in the grasp of friends and family. So, you have to be at a stage when you can actually realize your vision and can easily convince the investors of the true potential. Before that stage, you have to work on your idea and wait for the right stage.
After answering these questions, either you want to go back to drawing board and give some more time to your startup to take a shape or you have concluded that you actually need cash injection to grow your business. If you are sure that its money then it does make sense to approach an investor. Time to prepare for your pitch with numbers to impress the investor.