TECH STARTUP GUIDE: GETTING THE IDEA TO SECURING FUNDING

by Melanie Hudson, financial valuation analyst

Over $58 billion in venture capital was invested into startups in 2015. Venture capital firms are continually investing in new companies with strong ideas and solid management, and the funds being poured into startups is steadily on the rise. With all this money going around, you may feel heartened to give your own startup idea a shot. While you may be tempted to dive headfirst into starting your company, you’ll need to do your homework first.

Unfortunately, a little over 50% of startups fail in their first four years. This percentage could be lowered if entrepreneurs put more energy into the beginning stages of business development. Planning is critical to your tech startup’s success, but is oftentimes overlooked. Follow the step by step guide below to learn how to craft a well-made plan for your startup, from getting the idea to securing funding.

Settle on an idea

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Don’t accept petty problems as a fact of life – build your business around them. Remember late fees for movie rentals? Netflix got rid of that. What about losing files due to hardware failure? Thanks to Dropbox, that’s no longer an issue.

The best way to come up with an idea for a tech startup is to think of problems that need solving. Often startups fail because the company is based on a superficially good idea that fails to truly consider the consumer. Most great companies have sought to fix a problem plaguing individuals. Seek to address a problem and you will naturally settle on a profitable idea.

Seek mentorship

Every great idea thrives off collaboration. Mentorship can be the difference between a plausible idea that falls flat and a fool-proof technology that delivers. They provide you with connections, give suggestions for acquiring capital and, most importantly, offer sage advice.

A mentor can be a trusted friend or even someone within your own family. If you are having a hard time finding industry experts in your area there are a wealth of resources on the internet that can help you connect.SCORE, a non-profit organization, provides a platform for retired professionals and burgeoning entrepreneurs to connect. The service is completely free. So, even if you’re strapped for cash and connections, you’ll be able to get the wisdom and insight your new company deserves.

Network, network, network

If you want to achieve anything in this life you’re going to need friends. Building relationships with mentors is of the utmost importance. It is perhaps the most crucial thing you can do in the beginning stages of your startup. Still, it’s only a starting point. You’re going to need a much larger network of friends, partners and professionals to get your startup off the ground.

Networking provides you with more opportunities to meet talented, motivated people with the one thing you may not have earned just yet: hard-won wisdom.

Here are some suggestions for building your network:

  • Use Social Media as a tool. Find thechannels your target market is using and build a presence there.
  • Attend meetups for entrepreneurs. Get out there and introduce yourself.
  • Reach out to business leaders you would like to emulate. Ask them to describe their approach.
  • Be a friend. Ask potential partners out to lunch. Be open to meeting with anyone, even if you think they can’t offer you something right this moment.

Formulate a business plan

Now that you’ve refined your idea with a network of trusted friends, you can begin to create a business plan. You’ll need to boil your business plan down to an elevator pitch – a punchy, one-sentence summary of your startup’s goals. This can be especially difficult if you’re developing complicated software. Once you’ve done the impossible task of paring down the idea to its very essence, the rest will be simple.

From your elevator pitch, you’ll be able to build your executive summary. Think of this as the heading of your business plan, you’ll address key aspects of your startup here. Your plan will then take shape as you go further in depth. This means you’ll have to be knowledgeable about your target market, how you will fare against competition, how you plan to advertise and the size of the team you will need to pull it all off.

It’s important that you do your research here, too.

You must determine your startup’s market potential and the funding you will realistically require. You’ll reach these calculations with your projected revenue, operational costs and cash flow, which will span the first few years.

Pursue funding

You’ve got your business plan in hand. There’s only one thing left to do: get the funding you need. This can be overwhelming as there are so many options. Weigh them carefully.

Funding sources:

  • Growth

It’s possible your startup could function without any up-front investing. If you start a low-cost internet business, for example, you could grow your business with its own revenue.

  • Small Business Grants

If your startup is built upon a proprietary technology, you may be eligible for research grants. Or perhaps your startup involves an AI system adept at eradicating disease. There’s a chance there’s a grant waiting to support your startup.

  • Angel Investors

Some groups like to invest their own money. These individuals invest in entrepreneurs instead of merely the projected revenue of a new company. They’re focused on helping guide your startup. Usually, they offer capital in exchange for equity.

  • Venture Capitalists

Venture capitalists are basically the opposite of angel investors. They are looking for a large return on their investment. They fund through a venture capitalist firm’s pool of money, which is collected from many different investors.

Conclusion

Tech startups, like any startup or small business, have their own set of unique challenges. If your company is built out of your own research or is a result of software you’ve built, you may need to protect your IP in special ways, for example. Or you may need to work more closely with consumers to see if your product is understandable and user-friendly. Consider collaborating with universities like Harvard, who specialize in helping tech startups.

However you decide to go about making your company a reality, remember to constantly educate yourself on your target market, your consumers and your fellow entrepreneurs. Use this guide as a springboard for further research, connect with other aspiring business leaders, and make your startup dream a reality.

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