To create a successful hyperlocal product, founders need more than just a great idea. In most cases, they need funding to bring their visions to life. Of the 600,000+ new businesses that are formed in the U.S. each year, fewer than 10% raise equity capital from unrelated third parties. Thirty-one percent of small business owners borrow from friends and family to get their companies off the ground, and 75% take out bank loans and lines of credit.
Although it’s a given that the founders of most early-stage hyperlocals need funding to bring their ideas to life, many entrepreneurs are still unsure of where to turn for financing during the earliest days. To answer that question, we reached out to executives who’ve founded hyperlocal companies and asked what worked for them. Here was their advice.
1. Look for angels. “Initially, we looked for angel investors to raise a small seed round to get started and build a minimum viable product to figure out product/market fit. We found many of our angel investors to be super helpful, whether with general advice on how to grow a business or specific to our industry. A few of our investors had strong ties to the restaurant industry, our first vertical prior to extending Locu’s services to all local service businesses. Later on, we raised a Series A from traditional institutional investors. (General Catalyst led our Series A.)” (Rene Reinsberg, Locu)
2. Execute immediately. “Once you have your first investment, execute. Identify what you plan to achieve with the money, then make sure you achieve it. Investors will reward you by contacting their network of friends, who have capital to invest. Gaining access to a wider network of investment capital is very important and part of an ongoing process. The network effect applies to raising capital, too.” (Jack Wrigley, Qwiqq)
3. Leverage sales opportunities. “At Qiigo, we have grown organically leveraging sales opportunities with our customer base. A large customer will request a custom or particular feature. They will pay for it and provide the functional input, but we benefit by growing our platform. My advice is to focus on one customer and get them to pay for features that benefit your other potential customers. Now that we are nicely profitability, we have been able to secure traditional bank financing that helps speed our growth.” (Rick Batchelor, Qiigo)
4. Channel Sy Sperling. “Want to get the attention of investors? Remember Sy and his famous tag-line, “I’m not only the Hair Club president, but I’m also a client!” It’s one thing to have a roster of marquee clients. It’s a completely different ball game if you get them to invest. But, make sure any strategic investors use your product. You can’t make investors use your product. They have to want to use your product. If they invest in but don’t use your product what does that say?” (Winston Bao Lord, Venga)
5. Update investors with progress regularly. Investors hate being in the dark. Even if you raise $5,000, update the investor as though they invested $1 million or more. Providing updates will allow you to secure more capital from current investors, and it will allow current investors to share your progress with their network. If you don’t update your investors, the capital will dry up.” (Jack Wrigley, Qwiqq)
Have other ideas for where early-stage hyperlocals should look for funding? Leave a description in the comments.
Stephanie Miles is an associate editor at Street Fight.