Do you want to fund a startup? Read this first.
Funding a startup is one of the most common pursuits entrepreneurs have. First and foremost, it’s important to understand that there aren’t people waiting around to throw money your way just because you’re passionate about a new idea. It will take work to fund your startup.
However, the good news is that there are many more options available for acquiring startup funding than there are available for buying real estate or a vehicle. Any entrepreneur who is dedicated to finding the funds they need to grow their business has many options available to them. Although, before you even considering pursuing funds, there is one very important question you need to ask. Do you even need funding?
Some Startups Don’t Require Funding – Or Won’t Get It
Not every business model requires intensive funding—many can be bootstrapped, meaning any profits made by the company are funneled back into its growth. This also means that if your company doesn’t turn a profit, it will have to shut down. However, bootstrapping allows someone to start a company without having to worry about venture capital control, investor returns or taking on debt.
Deciding to pursue venture backing means that you believe your company needs to grow faster than the typical revenue stream in order to lock down a large market. It also indicates that you wish to go public someday.
Below are some of the businesses and situations that will be difficult to fund with anything beyond credit or personal investment:
- There aren’t any publicly traded companies that do what you do. It’s rare for a startup to create an entirely new type of business. There should be a company being traded that has the same core business model as your startup. Most new startups disrupt an existing business or industry, not create one. Most investors won’t want to back a company that’s unable to reach a high level of revenue.
- You’re building onto another product. Some developers and founders believe that creating features or plugins for existing products is a great way to build a business. They’ll be purchased by that business, or a competitor, and have the cash they dream of. While it can work, it’s more of a gamble than a business decision. What usually happens when a business is based on expanding an existing product is that the company is likely to simply build in that feature themselves.
- Your growth is completely linear. Venture capitalists and any other investors like to see exponential growth. They’d like to put some fuel on a burning fire, not help you light the match. Linear growth is great for a bootstrapped company, but it’s not going to entice any investors.
- It’s only you. You might have a few employees, but if you’re the sole founder it will likely be difficult to secure investments. This is because the investor will be relying solely on you for a return on their investment. What happens when you cross the street just a second too early and walk into a truck? Your company dies with you. Having co-founders also indicates that other people are willing to get behind your idea. Lastly, very few people have the skills required to build a successful business. Bringing in more people means sharing the responsibility.
- No money is being made. Operating a startup is much like churning butter: It takes a significant amount of energy and it will create a certain result. You can safely judge a churner by the production speed and quality of the butter. However, if there’s no butter, you have very little information to evaluate the churner. This applies directly to startups. If you’re going to solicit an investment, you need to be able to show that you can make money.
All of the above points apply directly to soliciting investments from venture capitalists or angel investors. Many entrepreneurs believe these are the best ways to fund a business. While they can be great if secured, there are additional options that give entrepreneurs enhanced flexibility.
Ways to Find Funds for Your Startup
Below are a few effective ways that any startup can use to creatively secure the funds they require. Some of this will only be available to certain types of companies, while others can be used by almost any entrepreneur.
- Pursue a line of credit or bank load. It’s difficult for a new startup to secure this type of loan since there are typically no assets to put up for collateral. However, individuals with excellent credit history may be able to pursue this option. You may even be able receive help from the Small Business Administration to receive funds without normal requirements.
- Barter your services for help. While entrepreneurs tend to focus on cash flow and expenses, as they should, it’s not the only way. Consider bartering your startup’s service or product in exchange for help with your business. For example, you might provide network support in exchange for free office space. You never know what options are available for those who ask.
- Seek out venture capital or angel investors. Is your startup established, showing exponential growth and have a business disrupting model? If so, you might be a perfect candidate for venture capital backing. Typically, these investors are looking for large scale businesses ready to reach the next level. You’ll need a proven team and plan of attack for your funds.
- Try crowdfunding. This is the newest option for investors to pursue and one that’s proven to be effective for some businesses. You create a page highlighting your product or service and people make pledges to back you. In exchange for their backing, they receive a t-shirt or advanced copy of your copy, for example. In exchange, you receive capital to grow your business and even some added publicity.
- Fund it yourself. Starting a business has never been cheaper. Bootstrapped businesses are often self-funded. It will take time to save money for growth, as well as paying your living expenses, but you’ll have complete control over your business and an excellent sense of achievement.
Every entrepreneur deserves a chance to succeed. Explore each of the above options and see which will be perfect for your startup.
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Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.