Why your startup needs funding: 4 advantages of raising capital early on

A lack of capital is the number one reason why startups fail. Research from CB Insights shows that 38% of the startups who fail had an empty bank account and didn’t manage to raise capital in time. Our own ten years of experience back those findings. No matter how promising your idea or how great your product, it’s game over when you run out of money.

It’s not impossible to grow and scale your startup without funding. There are startups who manage to bootstrap their way to success or fund their growth through customer’s money (by far the best and cheapest form of funding!). But it becomes harder and harder, especially for technological startups.

Luckily, these days startups have access to different types of funding. They don’t depend on bank loans alone anymore. Our funding landscape has become much richer, with different players and types of funding available to ambitious startups. VC’s and investment funds obviously are an important source of funding, you can reach out to business angels, or you can resort to crowdfunding or revenue-based lenders.

Accelerators also chip in. At imec.istart we invest at least 50K euro in every startup selected into our accelerator program. We can even raise that amount up to 250K euro. We also organize an Investor Day twice a year, where startups looking for funding can pitch to investors and financiers. Additionally, workshops and personal coaching focused on funding are crucial pillars of our accelerator program.

So, why do we pay so much attention to funding? Let’s take a look at some of the main advantages.

1) Grow and scale much faster

Time is money, but the reverse also applies. Money allows you to move faster. In the technology industry, speed becomes increasingly important. Speed trumps perfection. Competition is fierce and if you wait too long to bring your product or service to the market, your competitors might eat you alive. The first mover advantage is very important.

You need funding to invest in talent, marketing, sales, production capacity,… early on. Funding gives you the opportunity to have the best of both worlds: speed and a top-notch product. The additional money also enables you to ramp up successful (smaller) experiments much faster, e.g. in online advertising.

2) Boost your credibility

When VC’s, angels, the crowd or an accelerator invest in your startup, they also boost your credibility. A new investment by external investors also gives a signal to the outside world that they believe in your future potential to grow into a successful company. Funding is a seal of approval, especially if provided by professional and experienced investors. That’s why funding rounds are also great PR-opportunities.

3) More than money

Investors not only bring money, they also bring experience, expertise and a network. When you want to raise capital, make sure you are critical and have a sharp idea of what type of investor you are looking for. In the startup stage, you need funding, but you also need people who offer you advice, open doors and give you access to the right people and the right companies. Most investors have already done several times what you are trying to do. They have built companies from scratch and they are well aware of your biggest struggles and challenges. They know the drill. Don’t settle for the first candidate to cross your path, look for funding from people who offer additional value.

4) Set the snowball in motion

Funding works like an avalanche. If you have already raised capital it will become easier to raise more capital in a next funding round. For every euro imec.istart has invested, our portfolio startups on average attracted 35 times that amount in follow-up financing. That number is still growing, now capital becomes widely available for promising tech companies. The startups and scale-ups in our imec.istart portfolio started small, but over the past ten years they have raised over 600 million euros in follow-up funding. A milestone we are incredibly proud of, because this funding enables companies to achieve great things!

Are you looking for (financial) support to accelerate the growth of your tech startup?  Three times a year (May - Sept - Jan), imec.istart organizes an open call for tech startups to apply for a seat in our program.