5 Ultimate Capital Raising Strategies for an EdTech Startup
The EdTech market has grown exponentially over the past decade. In 2010, the industry had a venture capital investment rate of $500 million. By 2020, almost ten years later, this number had become up to 32 times higher.
So what does this mean for companies within the EdTech industry? Well, it’s pretty simple, really. Launching an EdTech company is a worthy investment that will prove profitable if you play your cards right. However, despite this industry’s “magical beanstalk” abilities, there’s a catch for startups and small dogs.
The profitability of the EdTech industry means that the competition will get stiffer, and of course, raising capital for a startup will (and has) become increasingly harder. In this article, we would like to focus on the best strategies for navigating this dilemma. How can EdTech startups raise sufficient capital pre-launch?
Let’s find out, shall we?
Difficulties with Raising Capital before Launch
1. The Harsh Realities of Raising Capital for Startups
For anyone considering raising capital for their EdTech startup, it’s easy to delve into this project with shiny eyes and big dreams. Unfortunately, most founders end up disillusioned after they come face to face with the harsh realities of fundraising.
To help you avoid this disappointment, here are a few things to note about raising capital for any startup:
2. Raising Money Costs You More Money
This might seem like a ludicrous conundrum to find yourself in. After all, how can raising money cost you more money when you have no money? Sounds funny, doesn’t it? However, raising capital for an EdTech startup (or any startup at all) requires a lot of creative energy, time, and 100% effort.
In most cases, you might need to drop every other thing you were previously working on to face your fundraising project squarely. The end result? You’ll have little time or energy left to properly focus on running your startup. This means less marketing, less technical efforts, and lower sales.
3. You May Need to Say Goodbye to Privacy
There’s no privacy when it comes to raising funds for your EdTechstartup. If you’re trying to convince investors to part with their hard-earned money, you’ll certainly need to pump them with all the information they need.
In most cases, this information might be confidential such as your financial records, competitive strategies, and so on. You may also need to brace yourself as there’s the risk of this information falling into the wrong hands (e.g a major competitor). However, all these are the downsides of any fundraising project.
4. The Search May Take Months…or Years
Raising capital isn’t a magical conquest that can be completed with just a snap of your fingers. In most cases, it may take months (or years, if you aren’t so lucky) to find a financial backer to help launch your startup.
In some cases, some financial backers might even back out right before they seal the deal. So, here’s a word of advice: always keep your options open when raising funds/capital for your startup. The more alternative funding options you have, the more likely you are to succeed.
That being said, let’s take a look at the best capital raising strategies for an EdTech startup, shall we?
The Best Capital-Raising Strategies for Edtech Startups
Crowdfunding is one of the most popular ways to raise capital for startups and new businesses. Thanks to the digital age and modern technology, it has become even easier for startups to participate in this fundraising technique.
Wondering how? Let’s picture a scenario: you have an idea for an EdTech startup that makes kids’ math games. You make a business pitch on a public crowdfunding platform. Crowdfunders on the platform get interested in your business model and donate funds towards it. At the end of the day, you’ll have garnered sufficient capital to launch your EdTech startup and start growing it.
Why we recommend the crowdfunding model to raise capital is that it offers a two-pronged benefit for startup founders. On the one hand, you get finance for your business. On the other hand, you also gain free marketing simply by talking about your business model/idea on a public platform. Crowdfunding is also a great idea as you don’t necessarily have to place your startup at the mercy of a broker just to raise capital.
Unfortunately, this fundraising technique has been overly saturated and as such, it may be challenging to get your voice heard over the noise of numerous competitors seeking funds for their own businesses as well.
Bootstrapping is yet another viable way of raising capital for your EdTech startup. If you’re trying to launch a new business, it’s essential to have some personal funds. These personal funds can act as your capital for your startup. In most cases, friends and family can also come to the rescue by loaning (or gifting) you funds to launch your new business. This is essentially what bootstrapping is all about.
Bootstrapping is a great capital-raising strategy because it offers you much more flexibility than other strategies. For instance, when you borrow money from friends, you can choose a flexible payment plan to service your loan. More importantly, the funds will be easily accessed with fair interest rates.
On the downside, while bootstrapping is an enticing concept for small-scale startups, it’s not exactly a viable solution if you’re trying to create a large-scale EdTech company. This is because large-scale businesses are more capital intensive and these funds may not be available from your personal savings.
3. Angel Investors
Angel investment is the newest trend for new startups and businesses. Basically, an angel investor (or angel funder) is a person with a high net worth who’s willing to invest their money in small startups or entrepreneurs with mind-blowing business ideas.
Most angel investors are interested in helping startups get off the ground and offer more favorable terms than you’d get from a bank or other lenders. In some cases, they might invest via crowdfunding platforms or pool resources with other angel investors.
Angel investment is a great strategy for raising capital for your EdTech startup because these investors not only offer capital but may provide helpful mentorship as well. Unfortunately, since this fundraising strategy poses a huge risk for the investors, they tend to provide low investment capital (less than 10% of their portfolio).
4. Bank Loans
Whether you’re looking to build a video game app or a learning platform like Brighterly.com, the chances are that you’d need a huge amount of capital. This is where banks come in today, many banks and financial institutions offer bank loans to entrepreneurs and startups. All you have to do is provide a solid, well-structured business plan that covers the profit forecast, timeframe, and other key areas.
However, it’s not always this straightforward. Banks can be pretty strict about lending to startups and as such, you’ll need to bring your A-game to the table. When submitting your pitch for a bank loan, convey your enthusiasm and dedication to the project while assuring them that you can repay the loan. It’s also essential to ensure that you’ve not had any previous financial problems as this is a common reason for rejection.
In the same vein, avoid making any unrealistic projections because banks can see right through the act and won’t hesitate to drop you if they sense that you’re bluffing.
You’re probably wondering why banks are worth the stress if they have so many hoops that startup founders have to jump through. Well, it’s simple. Banks typically offer large capital to entrepreneurs so if you’re building a large-scale startup, this is an option worth considering.
On the downside, it’s quite easy to lose your collateral if plans fall through.
5. Fundraising Contests
Fundraising contests may seem pretty informal but they’re an option worth considering when it comes to raising capital for your EdTech startup. In today’s world, there are tons of contests and competitions available to entrepreneurs seeking funding. Much like crowdfunding, these contests require you to come up with a detailed, fool-proof business plan and pitch to the organizers of the contest. Fundraising competitions are great because even if you lose, other potential investors who watched the public contest might be willing to invest in your startup if they liked your pitch.
However, as exciting as they are, these contests should not be your only funding option. There’s no guarantee that you’ll win them and certainly don’t want to end up at ground zero if you don’t win.
Sourcing capital for an EdTech startup can be incredibly difficult and complicated. In most cases, startup founders give up before they even start the journey. But it doesn’t always have to be this way.
With the strategies outlined above, you can raise capital for your startup and kickstart business in no time at all. However, it’s important to always keep your funding options open and flexible. Investors may pull out at the last minute and having a backup plan will certainly come in handy in this scenario.