Ever wondered how businesses raise the initial sum of money to get started? Starting a business from the ground up with money earned from part-time jobs would be amazing for university students like us. However, the reality is that most individuals who dream of starting a business cannot afford to put all their savings and assets into one idea.
So how does one get started? Well, to get the ball rolling, individuals usually have to start by investing their time in research and spending a small amount of money on this research and initial idea development.
Once an idea is formed and operations start picking up, businesses reach the most challenging part– fundraising.
There are several ways to secure external funding for a new business. A common model that is employed by founders is angel investing. Angel investing is when high networth individuals (HNIs) who possess relevant skills/knowledge about the market of your upcoming business try and invest into the business for part ownership. This part ownership is known as equity.
Your upcoming business idea could have several angel investors. Think Shark Tank! They are the most common example of angel investors!
The best part about investors? Since the investor owns a part of the company, they have an incentive to help and guide you through the expansion of your entrepreneurial dreams. This is why they need to have some prior expertise in the desired market of the business.
Since angel investors usually only involve individuals, it is harder to raise large amounts of funds. Even if you could, you would need to pitch to a lot of investors and keep all of them satisfied which can be taxing. This is where VCs or venture capitalists come into play.
VCs are professional firms that pool money from various investors to fund start-ups and high-growth companies. Think of them as a talent scout for a sports team (your company) that will carefully evaluate all options, filtering out less suitable candidates and ensuring only the best are backing you.
VCs look for scoring big on scalable ideas and profitable companies.The good things about VCs? They have a large network which investee companies can leverage, they are usually hands-on and offer operational advice. Not to forget, VCs have deep pockets so they can be the next piece to your next expansion plan
Now your head may be spinning but to break it all down, the key difference between angel investors and VCs is scale and involvement. Angel investors are typically individuals investing their own money, and they might offer mentorship and guidance. On the other hand, VCs manage larger pools of funds from various investors and are often more focused on high-growth potential and scalability.
These are usually the most common ways of funding your new idea. Some individuals also choose to keep it simple and take bank loans and some choose to get crowdfunded on the internet. But regardless of the funding route you choose, the most important factor to consider before pitching is having a solid business plan and pitch.
As early founders, you do not have products to sell but rather need to sell your vision and operational skills. Basically you should pitch you! Lenders need to believe in you and your product to invest so make sure you know the ins and outs of your product.
Starting a business is not easy but with a strong vision, operation plan and the funding, it is definitely possible, even for university students. So when do you have your next idea? Instead of constantly tossing up half-baked ideas, come to us.
We, the ANU Entrepreneurship Club, offer you the chance to get your idea validated by a top executives at VCs, angel investors and even a direct opportunity to get funded. Become a member today and turn your dreams into reality.
