Did you come up with a winning business idea in 2014? Are you excited about trying to launch a startup this upcoming year? If so, you’re probably beginning to think about where you will find capital to get your company off the ground. The good news is that there are many things you can be doing right now–even during the quiet holiday season–to begin turning that dream into a reality.
“The key to landing capital is to always be in funding mode,” says Hadley Mullin, a senior managing director at the private equity firm TSG Consumer Partners, who has met hundreds of entrepreneurs with companies on the cusp of becoming the next big thing. “The best time to be looking for funding is when you don’t yet need it.” Founders who are desperate for funding tend to make poor business decisions and are unattractive to investors, who can sniff neediness a mile away. Instead, Mullin advises entrepreneurs to use downtime wisely so that when the right funding partner comes along in the new year, they’re ready to close the deal quickly.
Here are some strategies she recommends:
“When you’re starting a company, you are fighting so many fires on a daily basis that it is easy to make networking a low priority on your list,” Mullin tells Fast Company. “But networking is the single most important thing you can do to secure funding.” She urges entrepreneurs not to be cavalier about networking, but to deliberately allocate time to going to events and meet people who might lead them to finding sources.
For people who are new to the startup world, it can feel daunting to start building their network from scratch. One good place to start, Mullin says, is to target other entrepreneurs who have created successful businesses in their category, secured the right amount of capital from the right sources, and then made a successful exit. “In my experience, seasoned entrepreneurs are very keen to help the next generation of business leaders,” she says. “They tend to make highly efficient funding referrals and even potential board members. You’ll be looking for unbiased but highly informed perspectives from your board, and entrepreneurs who have done what you are trying to do are the perfect fit.”
A common mistake Mullin has observed is that entrepreneurs often cut corners when it comes to hiring in the early stages of their business. To cut down on payroll costs, they use contractors who are not invested in the long-term success of the company or hire young, inexperienced–but cheap–employees. “That’s a big mistake,” Mullin says. “You are building the infrastructure of your company and to do it right, you need to surround yourself with A-players.”
Hiring talented, experienced employees is expensive, but Mullin says that it is a worthwhile investment because having a strong team will matter when you try to pitch your business to investors later on. “When we’re evaluating your company, we’re going to be looking at the team you’ve assembled,” she says. “If you’ve hired proven executives who can take help bring your idea to fruition, we’ll be more likely to invest in you.” Mullin says that it is worth taking the time to comb through your network to find the right people to bring on board, rather than just making ad-hoc hiring decisions when the work becomes unmanageable and you need more hands on deck.
When you’re just starting out as an entrepreneur, sources of funding might feel frustratingly hard to find, but Mullin says that as you start meeting with investors, you will quickly find that there is a lot of capital available. “It is a great time to be an entrepreneur,” she says. “There are ample sources of funding out there and with so many options, entrepreneurs can be very demanding when it comes to picking which fund to go with.”
Mullin says that it’s worth thinking about what you are looking from a fund. Rather than just finding a source of capital, she says you should think about bringing people on board who will act like true partners, willing to give you their time, expertise, and insight. Mullin recommends looking for funds that have deep expertise in your particular sector. For instance, if you’re interested in launching a consumer product, the right funding partner will come to the meeting with a developed point of view about the competitive arena you are playing in, offering ideas about how to elevate your brand profile and sell your product through new channels. “Think about questions you will ask potential funders and don’t be afraid to go deep,” she says. “You can tell you’ve found the right partner when they are able to add value even before you close the deal.”
While it might not feel like it at the start, clinching funding is not the hardest part of launching a business. The far more challenging problem is what you will do once the money is in the bank. Mullin says you should find investors who can help you manage your growth and who have a similar vision about how long it will take to make your company profitable. So before you begin doggedly hunting for capital, it’s worth thinking through the tough questions ahead and bonding with members of your network at holiday parties.