In the entrepreneurial world, funding is about helping you accelerate scale. It allows you to rapidly increase investment in key areas of the business so that you can move faster than if you funded through your own money and/or revenue.
That being said, not every company is fundable. Here’s what you should consider as you contemplate whether you want to raise capital or simply continue bootstrapping.
Do you have a team?
Investors and lenders will less often invest in a solopreneur. That’s because funders want reassurance that the business will survive if anything goes sideways and you need to step away.
While you don’t necessarily need co-founders to successfully raise, you do need a team. Contractors and part-time staff can be considered a team if there’s a plan for them to take on a leadership role when you close your round.
Do you have a minimum valuable product (MVP)?
Why Valuable vs. Viable? Your MVP should be usable and able to deliver actual value to your customers. That means no mockups – they don’t actually give you a clear sense of whether your customers need/want your product.
With investors especially, you’ll need to have revolutionary intellectual property (IP) or a prototype that’s close to commercialization – perhaps even launched – and have users on your platform, even if it’s all done manually and piecemeal behind the scene.
What Does Traction Look Like?
Coming up with a solution is one thing; getting it into the hands of customers is another. Being able to prove traction will help you de-risk the opportunity for investors and secure a better valuation for your rounds.
Pirate Metrics are a good set of high-level key performance indicators (KPIs) to help gauge the health of your startup. Coined by Dave McClure at 500 Startups, it’s called Pirate Metrics because it stands for AARRR – Acquisition, Activation, Retention, Revenue, Referral.
Prematurely scaling risks failure
Be aware of how ready you are before you start to raise. Just because 5,000 people have signed up for your newsletter, doesn’t mean that you’re ready to pour money into it and make it scale quickly. You could be amazing with marketing but actually have a terrible product/solution which needs to be revised. The last thing you want to do is build a leaky ship!
If you have at least Acquisition, Activation, and Retention nailed down, you’re ready to start raising.
If you’re not there yet, pause here. Bookmark this, go focus on customer discovery, flushing out your product, and acquiring new users/customers OR consider other ways of funding your business for now.