With an entrepreneurial spirit, innovative ideas and a focus on exponential growth, startups have been gaining more and more ground. They are born from the desire to do things differently, being able to innovate in areas that have operated in the same way for generations and, as a result, completely transform the market in which they operate. These and other reasons have created valuable brands - and, if we think of successful examples such as Netflix, Google and Uber, it is easy to understand why.
Creating a successful startup isn’t just about having a great idea. Among the things to consider for a successful business, finances are at the top of the list. In 2019, the CBinsights portal published a survey of 101 failed startups to find out the reasons that led to their failure. It found that 55% of the reasons were linked to finances.
Vice-rector of Saint Paul Business School and LIT professor in the hungary whatsapp data courses Economic Feasibility Analysis of Investment Projects , Quantitative Methods Applied to Business and Corporate Finance I - Cost of Capital , Professor Dr. Bruna Losada recently spoke about the topic in an online class exclusively for LIT students.
Author of the book Finance for Startups: the essentials for entrepreneurship, leadership and investment in startups , the professor gave some tips for entrepreneurs who wish to deepen their knowledge on the subject - studied by her in her post-doctorate at Columbia University.
Finance for startups: What not to lose sight of
First of all, understand your business model
It is necessary to fit your startup into an innovation business model. Revisit your project to find out if the idea is viable, if there is a market for it, if it is profitable and, most importantly, if it is possible to foresee exponential growth, which is what constitutes a startup.
Bruna reiterates that, in the beginning, it is ideal to have little money. How so? "If you are in a moment of abundant liquidity, this is an incentive to waste resources. And, in the case of a startup, when you have not yet validated your business model, studies show that having an abundance of cash leads to waste", she explains.
In practice, what works best is to follow one of the main rules of startups: trial and error. With little cash available, the pressure and efficiency are greater, encouraging the company to reinvent itself more quickly.
How will you finance your startup?
Whether at the beginning or during the growth of your startup, you need money to sustain the business or invest in strategies that will help the company evolve. There are a few ways to get the necessary funds. The most popular are:
Bootstrapping:
It is nothing more than investing your own capital in your startup. The main advantage here is that you do not have to give up control of your business.
Credit:
A bank loan is always an option, since it is possible to obtain the necessary funds without giving up control of the startup. However, the professor warns: “The downside is that you need to be able to pay the debt and interest. Therefore, a loan is only viable for those times when you have the comfort to generate cash.”
Investors :
A very common option in the startup world is to look for an investor who, in exchange for the money, will also have a share of the company. There are many types of investors, but the main tip is to choose someone who has the same interests for the business as you. "In startups, it is common to see the company drained by conflicting relationships with investors," explains Bruna.
Focus on good financial practices
Just like any company, it is necessary to apply good corporate finance practices to avoid problems in the future. In the case of startups, this is even more necessary: since they always work with uncertain scenarios, the margin for error is even smaller.