How To Craft a Funding Strategy for your Business
Securing funding is probably the most important step entrepreneurs take in their quest to build a successful and lasting organisation. However, most people don’t know how to create a funding strategy, and they don’t make an effort to learn how to.
Fund raising is daunting, learning about it seems even more complicated! Finances, financial models and numbers can be confusing for most entrepreneurs! There are many programmes about specific funding methods, but most of them lack a holistic view of funding. Most people who are seeking funds don’t have a clear overview of the many options available to them and often don’t align the needs of the capital available and their own needs. As a result they face unnecessary rejections, they can damage their image by being unprepared for the investors, which makes them feel inadequate, and at times, dumb.
Having experienced fund raising and investing, I created this article to help entrepreneurs craft an effective funding strategy in a systematic way that is enjoyable, empowering and successful.
A funding strategy can be defined as a systematic approach to gathering the resources needed to create and grow an organisation. Once you have a funding strategy:
You are better prepared to get the resources needed to reach your goals.
The probability of receiving funds increases.
The possibility of unnecessary dilution of ownership decreases.
Your profitability and/ or impact increases, and
The process itself is more enjoyable and less stressful.
A few important points to note for those working on a start-up, those growing a company or a non-profit, those establishing a project within an organisation, organising a group for a cause, and even consulting to others about their fund raising strategy;
In the case of for-profit organisations, note that the capital invested needs to be paid back with extra benefits (interest, dividends, or capital appreciation.)
In the case of non-profit organisations, also note that the capital invested or donated must generate a tangible benefit for the community.
In the case of a funding raised for a project, there needs to be a clear benefit to the organisation.
The one thing you need to know when raising funds that nobody tells you is that:
Funding is not a mechanical process, it is a human process:
Funding decisions are as emotional as they are rational.
This fact has two major implications, one for you, the individual requesting funding and one implication for the individual providing funding. It is easier to raise funds if you are passionate about what you are doing, and it is also easier to raise funds when the individual making the decision to provide funds likes you as a person, and believes in your cause.
You are more likely to raise funds if you leverage on your passion and off your skills. By leveraging on your passion you are more inspiring and resilient.
You are also more likely to raise funds if you are creating wealth, instead of making money. The subtle difference in intention between creating wealth and making money creates a huge difference in the outcome of your actions. If you are working to create wealth you grow the economy, and you take some of the wealth you are creating for yourself. It is then more likely that others buy-into, follow your vision and collaborate with you, as they can also share your big picture. If you are looking to make money, chances are that your efforts are for your own benefit and it might be more difficult to gain the support of others. Creating wealth is a much more powerful proposition than making money.
In the case of those providing funding, a return on investment is an important consideration but not the only one. The individual making the decision to provide funds or resources also considers how likely you are to accomplish what you promise, how you both relate to each other, and, in many cases, how comfortable he or she is with your project. What you promise to accomplish must be meaningful to the individual making the decision to provide that cash or resource in whichever role he or she is playing. The connection of the individual to you and your project plays an important role. For example, the same individual can be a family investor, a venture capitalist, a lender, or a collaborator for different projects. Different funding mechanisms and sources of funds have different needs for the investor.
A good deal turns into an irresistible proposition when the goals and needs of the supply and demand of capital are well aligned. Businesses don’t make decisions, people do, and we can’t discard the human nature of the fund raising process.
There is a systematic approach to fundraising that involves a 10 step process. Following these steps will greatly increase your chances of receiving the much-needed resources so you can fund a high impact idea. The reason I do this is so that people are better prepared for investors. We live in a great period for fund raising. Follow these steps to access funds and make your dreams come true.
Define your passion based vision,
Outline how you will measure success,
Identify the A team,
Define the needs for funding resources,
Clearly define the current state of your organisation,
Select the ideal source of funding,
Prepare a funding proposal,
Customise the message,
Start, test, improve, grow your list of potential funders,
Due diligence, closing the deal and opening the door.