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3 Things IT Businesses Should Do before Raising Capital

3 Things IT Businesses Should Do before Raising Capital

Friday, May 20, 2016/Categories: business-tips

Fundraising for your startup takes time, effort, and persistence. Before you embark on that journey, make sure you’re prepared – and not wasting your time.

Here are three steps any new business should take before raising capital.

1. Examine Your Business Idea In Depth

Any idea, however great it may seem, is not as good as a detailed business plan when it comes to convincing people to fund you. Before you even think of raising capital, do your homework.

“If the company wants how ‘good’ their idea is to carry the weight, funding becomes more difficult to achieve,” says Terence Channon (@terencechannon), managing director of (@saltminesgroup), a firm that helps startups prepare for funding.

Channon suggests digging in and examining your idea to prepare answers to the most pertinent questions you’ll face:

  • What is the problem you are solving?
  • How do you solve it?
  • Who are your competitors?
  • What industry trends and market statistics validate the magnitude of the opportunity?
  • How will you make money?
  • How will you get customers?

Even if you never pursue external funding, answering these questions will help prepare you for the realities of your new business. You’ll be in a better position to aim for success.

By doing this process, you may realize your business idea isn’t as strong as you originally thought – in which case, you can save yourself the trouble of fundraising until you tweak the idea or come up with a new one.

2. Get Feedback and Get Moving

Once you’ve addressed the questions above, Channon recommends getting validation with a form of prototyping and customer and partner feedback.

“It’s difficult and dangerous to try to raise funds with an undocumented, unarticulated idea,” he says.

In other words, get actual, real-world results. It doesn’t have to be large-scale, but it should show that your idea is workable.

If you create a mobile app, test it out and get feedback from users. If you develop an industry-specific IT solution, find a partner who’s willing to try it. Whatever your idea, it’s important to push it out of the nest and see if it can fly – or if it will crash and burn.

“Get moving,” Channon says. “Investors like to see action and progress, not talk.”

3. Plan and Prepare for Funding

Melissa Bradley (@bradleyml), Executive in Residence at the (@KogodBiz) at American University (@AmericanU), recommends that no company should approach investors until they have developed a larger fundraising plan that accounts for:

  • The total money to be raised until profitability.
  • The type of investors desired (financial, strategic, etc.).
  • The systems in place to support an institutional partner (such as a CFO or financial lead, board of directors, monthly financial and sales reports, etc.).
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