Capital fundraising is a necessary milestone to accomplish the company’s vision and goals. The entrepreneur’s job is to ensure that the company has the necessary financial resources throughout the company’s stages – from the development, marketing and sales stages.
Fundraising is considered one of the toughest tasks that a company needs to face. It must convince the potential investor that:
- The product provides a solution to a significant problem in the market
- The product’s value is large enough that the consumer will want to pay for it
- The company has a significant advantage over competitors in the market
The task of persuasion is challenging and requires a lot of planning, but before you reach a state of persuasion, you need to locate the potential investor. There are several ways to raise capital for the project:
Friends & Family
Especially in the early stages of the venture, when relatively small capital is needed, the fastest and most efficient way to raise money is through friends and family. Almost every entrepreneur has a connection to a friend or family member with the ability to invest sums of tens or hundreds of thousands of shekels to bring the company to the stage of advanced development. An entrepreneur who does not succeed in convincing a small investor to invest small sums will find it very difficult to do so when the sums are higher.
Private investors – Angels
There are quite a few wealthy people who are looking for investment opportunities and are just waiting for the right enterprise. Beyond personal connections, you can reach those investors through channels such as LinkedIn, Internet lists, and more. Investigate the investor before approaching to him and understand the investment amounts that he or she normally invests to match the amount of funding you request to the individual investor.
Venture Capital Funds
Most Venture Capital Funds do not invest in the PRE-SEED stage in which the company does not yet have a product or POC. Venture capital funds usually enter the stages where the company has product ready and even initial sales in the market. However, there are smaller VC Funds that invest in PRE SEED stage companies an amount of money that can range between tens of thousands of dollars up to hundreds of thousands of dollars.
If a company has a tangible prototype that demonstrates the product’s capabilities, you can turn to a crowd funding channel on a familiar platform such as Kickstarter or Indiegogo. The idea behind crowd funding is to ask the consumer public for money when the product is delivered, a few months after completion of the development. The money raised in crowd funding is partly used to complete the development and preparation of the infrastructure for mass production and of course to create an initial supply of the product for consumers who paid in advance.
This channel is relevant only to projects that are based on tangible products rather than applications, cloud technologies, etc.
Taking a loan from a financial institution to fund the venture is the most dangerous channel and is not recommended because the risk is very high and statistically significant, and the investment is likely to go down the drain.
However, it is possible and even desirable to finance development when the entrepreneur or entrepreneurs are developing the product and the money required is for the production of prototypes or financing servers that do not involve high expenses.
The State of Israel strongly supports the funding of technological projects in order to harvest fruits in the future (such as Waze, Mobileye). There are a number of plans that are relevant for young entrepreneurs and start-up companies, like the Tnufa Incentive Program. With Tnufa you can receive a grant of up to NIS 200,000 well the company participates in 15% of the expenses. The conditions for receiving the grant are: (a) technological innovation; (B) has or can be registered as a patented technology; (C) high potential for realization; (D) a team that is responsive to the nature of the product.