If funding is the fuel to a start-up, then fill your tank enough for the start-up to take off and ensure that it doesn’t crash. Keep in mind though, that several rounds of refueling may be required at different stages in the timeline of a start-up to keep it afloat. Clarity on the requirement and allocation of funds at each stage is imperative. For the number of start-ups that fail due to lack of funds, an equal number of start-ups fail due to over-abundance of those very funds.
During each stage of fund-raising, founders must be prepared to answer questions not only on the requirement, but also on the deployment of funds since most investors today are well informed. Experts at enablersinvestments.com warn that over funding in one round leads to dilution of a higher stake. It’s not just growth but also profitability that investors put their money on.
Disappointing results make the founders realize that higher burn rate may increase the revenue but not the profitability. As much as it is challenging to ascertain an optimal amount of money required for each round and how it should be deployed, it is crucial that one does not make the mistake of undermining its importance.
Due to the fact that most start-ups begin thinking of a marketing plan almost the same time as they device a business plan, the need for a marketing budget continues to hover around while the founders work on setting up their venture. To make the visibility factor kick-in, a fair chunk of funds is allocated to market the product or services. Agreed that in order to inform a large audience of what you have to offer, it costs money; other expenditures must be taken into consideration nonetheless. Business space, registration fees, equipment, furniture, supplies and other expenses associated with a business are costs that almost every start-up has to shell out. Any business though, must be prepared for contingencies and start-ups are no different. Once a start-up acquires the required funds, how those funds are deployed is equally important. It is advised to operate efficiently instead of going on a spending spree once the funds are secured.
More often than not, start-ups go all out for funding although not that informed in how much is actually required. Given the notion that funding opens a lot of doors, no venture wants to be under-funded. However, careful planning is required in order to ascertain how much funding is needed and how to allocate those funds. Over-reliance on funding also has its share of risks. Easy access to funds may limit the founder’s potential to access other cost-saving avenues of getting the job done. It may lead to complacency. Improper allocation of funds on the other hand could dismantle the entire set-up and hamper the growth of a start-up.
Getting into the shoes of the investor and keeping an eye on the return on the funds required would make entrepreneurs ready to face the music.
