For first-time entrepreneurs, it is hard to understand how some startups raise millions of dollars right at the start. It seems that success stories with companies like Robinhood, Lime, Instabase, GitLab, and more, tend to dominate people’s minds and cloud just how difficult the path to funding for new entrepreneurs can really be.
In reality, it is highly unlikely that first-time entrepreneurs receive a significant amount of funding just for having a brilliant idea. The road to successful fundraising for first-time entrepreneurs is often slower and requires making significant headways first.
The followings are typical paths that first-time entrepreneurs take:
1- Build a Highly Viral Application First: For the Business to Consumer products, this is often a viable path. Entrepreneurs can build an MVP of their product and make it viral before seeking funding. This is the path Facebook and Instagram took. Mark Zuckerberg built a fast growing social network and once it was proven that there is demand for what he built, he raised funding for scaling the business.
To make the first viral application, it is easier if you are a developer and you can build it yourself. Otherwise, the best path is to raise funding from friends and family or trusted angel investors. There are also a lot of accelerator programs these days that you may try getting into. As the competition has grown, you need to have a strong pitch and in a lot of cases, a working prototype to get into these programs.
2- Build the Technology First: This is a great path for people coming out of school often from Ph.D. programs or post-doctoral programs. You can take your time building amazing technologies in universities using grant money and once the technology has matured you can start a company. You can also be working in larger corporations and working to improve a technology and later take your expertise and start your own company. This actually happens often and is one of the safest ways of creating startups.
In some cases, large companies do not fully appreciate what their engineers are building or don’t understand the full potential of the technology. A notable example of this is Palo Alto Networks.
Palo Alto Networks’ founder, Nir Zuk, worked for Juniper which was at a time a highly successful business of selling expensive hardware-based firewalls. After they were unappreciative of his ideas and the technology, he left Juniper and started Palo Alto Network which mainly focuses on less expensive mostly software-based firewalls. Today, Palo Alto Networks has a $42B market cap vs Juniper’s $9B market cap. Of course, Juniper sued Palo Alto Networks for IP, but the settlement amount was peanuts compared to how much money Palo Alto Networks has made.
3- Build a Consulting Business Before Making it a Startup: This can work great for B2B ideas especially if it is hard to raise funding. Instead of defining your company as a startup, you treat it as a consulting company. You start by selling services and building products for companies. You will do best if you can sell “services” instead of “software”. If they are paying for software, you can try to sell it at a discount if they allow you to reuse the code for other projects.
Once there are a couple of paying customers and the needs of customers are clear, the business can be turned into a SaaS startup. You may still need significant funding to build scalable software quickly, and have a team of business developers in place to capture as much as the market right away. In most cases, if you have discovered a new business opportunity, your competitors will come sooner than you think and you better be prepared for it.
4- Getting Into Accelerator Programs: If you can put together a strong pitch deck, build a team, and potentially a prototype, startup accelerators provide a strong path for success. Some of them offer some funding and some don’t. What they often offer is good guidance and access to investors along the way. For entrepreneurs with not much experience or network, accelerator programs can significantly increase their chances of overall success.
Solo entrepreneurs with no prior experience in startups who don’t fall into any of the above categories and are not independently wealthy can face an uphill battle. Of course, there are always chances for success but as entrepreneurs, one of our main priorities needs to be to lower the risks and increase the chances of success wherever we can.
At Peachscore, we have built a platform that allows entrepreneurs to receive a full self-assessment of their startups and reflect on how they will be viewed as a possible investment by investors. For example, being a solo founder is not the best setup for a startup, however, having too many part-time Co-founders can also be less than ideal. The Peachscore engine is able to point out the strengths and weaknesses of your business that way you know how to best present yourselves to potential investors. Given how difficult it is to raise money from your startup in this day-and-age, it’s vital to get help whenever you can. That is why we built Peachscore, so we can help as many entrepreneurs get their companies successfully funded and on their way towards bringing the world more innovations.
Learn more about what we are doing at Peachscore and our new Funding Program where we are investing in startups within 7 business days.