According to the funding your startup checklist from AngelList, the average startup raises $1.2 million. But this doesn’t mean you should aim for that! In order to ensure enough funding should your startup expect to grow your business, you need to understand how much funding your startup is likely to receive. The most common way of estimating funding is in terms of ‘answers-based’ funding: If a certain amount of money is guaranteed, that’s usually a good sign that another company will fund your startup. If not, it might be worth looking further.
In this article, we take a detailed look at what an answer-based funding model is and how much funding should your startup expect.
1. What Is An Answer-Based Funding Model?
In an answer-based funding model, you ask investors for money and then get it directly from them in the form of equity or debt. This funding might come in the form of equity or debt, but either way, it is ‘assurance’ that you will be able to repay the funding if needed. Finding investors who are willing to provide equity or debt to help you get your business off the ground is very different from the general public.
You don’t just go out and ask for money from strangers, you go out and find the people you trust to invest in you and your business. With an answer-based funding model, you can expect to receive funding that is specific to your business type and funding amount.
2. What Is The Difference Between A Need-based And An Answer-based Funding Model?
The main difference between the two models is that in the need-based model, you aim to find a buyer for your product, while in the answer-based model, you try to secure funding from potential investors. These two models have many similarities, but there are still some key differences that could affect your decision on which funding model to use.
If you are using an answer-based funding model, you will have to decide whether or not to target investors who have money to spend on your product. In essence, you will have to decide whether your product is worth their while. If your answer is yes, then you can take the next step and ask for money. If your answer is no, then you will need to decide whether you should change the model to a need-based funding model and try again.
3. How To Determine How Much Money You Should Ask For Your Startup?
One way to get a ballpark figure for how much funding should your startup expects you should aim for is to ask yourself this question: What would make this startup worth $1 million? If you think about it like that, you will realize that your goal should be around $500,000. This is a very loose estimate based on how much you think your startup is worth.
Depending on your answer to this question, you can then decide how much money you should ask for. If $500,000 is not much to you, try altering your goal amount to $300,000, $200,000 or $100,000. If you think of the startup as being worth $1 million, then you can ask for $1 million.
4. The Best Way To Find Out How Much Funding Your Startup Will Receive?
The best way to find out how much funding should your startup expects will receive is to ask investors who have already expressed interest in your business. If they have given you an amount, then that is a good indication as to how much they are willing to fund your business. If they have not expressed interest, then you can go with a lower amount and ask. Keep in mind that the more investors who ask, the more likely you will get the amount you desire.
Founding your company can be a very difficult and stressful process. The more money you raise, the more options you have for expansion, and the more likely you are to succeed. With that in mind, it is important to determine how much funding should your startup expect for your startup. There are many entrepreneurs who get financing, but then decide to call it quits before seeing their product succeed. This is a huge waste of money and time.