3 min read
For months, reports have indicated that venture capital funding for startups is becoming more scarce. According to an analysis of Crunchbase data, global venture funding in 2022 reached $445 billion. That’s a 35 percent decline year over year from the $681 billion invested in 2021. And many are predicting another tough year ahead.
In a down market, it’s even more important for founders to set themselves apart from their competitors when pursuing capital. According to startup fundraising expert Tara Spalding, that’s why it’s vital for founders to have a thorough understanding of what makes a startup funding source unique before they start their pitch.
“Setting your startup apart is tricky because your approach needs to be customized to appeal to the capital providers themselves, be it individual angel investor, a venture capital fund, or a government grant,” Tara says. “Each is going to look for unique things. And where I see founders fail is underestimating the amount of work required to prepare for approaching those different capital sources.”
Tara is the interim CEO and Chief Programming Officer at VentureCapital.org, a Utah-based non-profit that helps make entrepreneurs investable and provides connections to capital.
In a webinar for Founders Network on March 9, she shareed insights on sourcing startup capital according to company performance, maturity and preference.
Here are three things Tara says founders should consider when choosing the right startup funding source.
To learn more about startup funding, check out our video from the event, and see if you qualify for membership to join Founders Network.
Payback Expectations
Each startup funding source carries its own set of payback expectations that Tara says founders should consider when analyzing options. Whether it’s a dilutive, non-dilutive, or debt based option, each has its pros and cons when it comes to payback.
“Most founders don’t understand the payback expectations these different capital sources have,” Tara says. “The payback is actually where people should start. Think about how you’re going to return the money that you’re taking and use that to then figure out if it’s the right source or not, people need to take equity and the payback expectation seriously.”
Deployment Plan
When analyzing different funding sources for startups, Tara says it’s important to consider what the funds you are raising are going to be used for. A number of factors, including the timeline for how funds will be deployed, can dictate which funding source will be the most appropriate for your needs.
“Is it for HR, sales, or marketing? Is it for product development or a new market expansion?” Tara says. “That’s what should actually influence how founders pursue different types of funds.”
Funding Goals
How the funds will be used will ultimately determine how much capital you need. Tara recommends looking at how much capital you need to turn a profit and only sourcing what is necessary.
“While I think pursuing multiple sources of funds makes absolute sense, you always want to take the least amount of capital possible because every single time you take more capital than you need, you’re often paying higher returns than you need to,” Tara says.
In her webinar, Tara also covered:
- Capital accessibility according to growth and profitability
- Why use of funds and expected returns are important to identify before sourcing options
- How to differentiate your startup from other options when fundraising
- Elements of your financial model that all capital sources expect you to know
To learn more about startup funding, check out our video from the event, and see if you qualify for membership to join Founders Network.
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