Less than 1% of startups receive the angel/seed funding they need. A number that only shows the scarcity of resources entrepreneurs compete for. Back in the day, before the dotcom bubble burst, startups used to raise millions of dollars with just a business plan and a compelling presentation. Gone are those days. Hundreds of thousands of entrepreneurs today compete for the same pile of cash and it certainly isn’t unlimited. With just an idea, how can you differentiate yourself from the crowd and add tangible value to your startup?
Blogging or content marketing is the foundation of all marketing. It is the strongest and most sustainable path to market investment you can make as a founder. Constant publications of quality content relevant to your upcoming solution will help you build and increase awareness, take potential users through the first stages of the sales or conversion funnel and acquire early adopters for learning and validation purposes.
Which is more attractive: an entrepreneur with just and idea or one with an idea and 500 blog readers of which 5-10% are qualified buyers? As an investor, I choose the second. Blogging is one of the value adding variables in early and later stage startups. Mint created MintLife, a blog that went to become the #1 personal finance blog on the web well before they introduced their product. The team knew who their potential buyers would be and what their needs are. MintLife was dedicated to providing valuable content to this group which created a welcome audience when their product eventually launched.
Fulfill orders manually
Which is more attractive: an entrepreneur with some qualitative validation or one who used nonscalable resources to fulfill orders and generate revenue? As an investor, I choose the second. Fulfilling orders manually depends on the nature of your solution and can take many forms. Aardvark, which got acquired by Google, proposed an algorithm to find answers to users’ questions through social media. Initially, users were under the impression that the software was doing the job when the team was doing all the work manually. Zappos founders purchased shoes as needed from local retailers and sold them under the brand they were looking to build.
Managing to stick things together to offer your upcoming solution is another value adding variable and chapter in your startup story because behind every successful company a unique narrative.
The value of a company’s equity is equal to the value of its assets, what it owns, net of the obligations (liabilities) it has to other entities. As an early stage startup, what you own is either zero or minor. Debt will negatively affect your valuation even if it is for investment purposes. At the initiation stage, debt should be your last resort, though it can add value later in the venture. Injecting personal funds, securing early orders (accounts receivable), eliminating non-business related expenses, and protecting your invention when it makes sense all positively contribute to the value of your startup. In sum, it is about maximizing what you can own and minimizing what you can owe.
Key partnerships build trust in a startup which in turn add value to it. Partnering with an established player in the industry is like insurance. In lending or investment, partners are regarded as co-signers. Funding can be issued not necessarily because the startup demonstrated imminent market need for the upcoming product but essentially because of the value partners add to the venture. Remember Shark Tank investors’ reaction to founders with purchase orders and/or formal manufacturing and distribution agreements with key partners.
Just as partnerships add value through trust and credibility, the expertise, guidance, and connections of advisory board members has an equally significant contribution to the valuation of the startup. The involvement of these members shows strong leadership and guidance and conveys safety, faith and recognition which brings greater valuation to the startup. Attracting these key members can be challenging but very rewarding in many aspects.
I strongly believe that the most valuable asset in a startup is the team behind it. A team with complementary skills, shared vision, passion and commitment builds strong valuation in the startup not just because of the results it can achieve but also due to the scarcity of such teams especially if members have previous successful startup experience. With a strong demand for a limited resource comes higher valuation. What is your valuation for a new search engine software idea to be started by Google founders or recent college graduates? The team and their experience is one of the strongest valuation variables in a startup.
No product is needed for each one of the above startup valuation variables. I bet this is one of the reasons Steve Jobs is convinced that about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance.
- Define future buyers then be of value to them through constant quality content.
- Use nonscalable resources for initial validation, to fulfill orders, generate revenue, and to learn how the product should function.
- Evaluate the effect of your business decisions from an accounting perspective. Your goal is to maximize shareholder equity which is the difference between the value of what you own and what you owe.
- Partnerships build trust which in turn build and increase value. As little as initiating the contact with key partners, following up, exchanging emails and discussing potential win-win opportunities is a value builder.
- Advisory board members can be the channel for key partnership and customer agreements, investor interests, and in hiring the best talent. Advisory members with previous successful startup experience directly impact the value of the startup.
- While content marketing is the foundation of all marketing, a startup team is the foundation of every great product. Members with shared vision and passion add tangible value to a startup.
How else would startups add pre-funding value?