Ideas are meaningless without a masterful execution.
Alejandro Cremades, The Art of Startup Fundraising
Why is funding necessary?
Money
Support
Expertise
While the concept of bootstrapping your startup may be in vogue at the moment, there will come a point in the life of any startup when funds are required not only to feed families and keep partners and employees happy but, more importantly, to allow the company to grow and expand; capital is essential for beating competitors to opportunities.
Raising funds and securing investment for your startup is one of the biggest challenges you will face on the road to success.*
The nature of startup funding is necessarily high risk and high return; most startups, by definition, are unproven and conceptual, even when there is evidence of traction and a tangible product/service is in place. As such investment is needed both to stimulate and support fast growth, and also to secure expert advice in order to navigate the uncertainties of the market and quickly gain traction and a foothold within that market.
In essence, startups need to move quickly to succeed in competitive markets or to disrupt existing, well-branded companies; for this, a healthy cash injection and advice from an investor experienced in these areas can be invaluable.
While many company founders find the idea of handing over a stake in their business and allowing an investor to help with the running and strategy of it unpalatable in the extreme; it is a truism that the most successful startups are those that secure investment from the outset.
And it’s easy to see why. Imagine someone with no previous experience in startups or even just no experience in the particular industry. Even if their idea is a good one, that will count for nothing if it can’t be implemented a) very well and b) before someone else does. And what’s the easiest way to optimise the chances of a) and b)? - Securing investment from one or several investors with experience, interest and contacts in that industry.
Consequently, our entrepreneur has now added several strings to his bow; he now has the expertise to grow his business along with the money and contacts to do it quickly and take full advantage of the opportunity.
*It is worth noting that many companies can achieve success without ever raising money through external investment. It will depend on the circumstances of each company whether funding is required. The article above has set out reasons why a company may want to raise money, but sometimes companies have sufficient expertise and can generate sufficient capital in order to succeed without it.