Perhaps, one of the critical challenges many startups face today is the lack of adequate funding. This issue can affect the early operations of any business, regardless of how viable the business idea is. This is especially true since money is considered the backbone of every business as it fuels the journey from idea generation to revenue generation.
Raising capital for your startup is never easy, especially, since in some cases, it may also depend on the nature of your business. For example, tech-based businesses are more likely to attract funding today, considering the world is in a digital transformation.
While it’s possible to get enough capital for your startup from one source, sometimes, you may be forced to source the money from various sources. With that in mind, here are some ways you can consider to help you fund your startup.
#1. Through Angel Investors
Essentially, angel investors are wealthy individuals who provide capital for a business startup, usually in exchange for ownership equity. In addition, angel investors typically offer advice and mentoring to the businesses alongside the money.
However, you don’t always need to know any angel investor to get funding from them. There are sites such as What Is Up and several others that connect investors and entrepreneurs. On these sites, entrepreneurs can create listings for their businesses that detail what they intend to use the funding for and how much equity they’re willing to offer up in exchange for the capital requested. If a business is successfully funded, it is given the total amount raised less a commission taken by the platform provider.
The advantage of raising funds through an angel investment network is that you can access active angel investors who want to invest in startups. These platforms also do a lot of due diligence on behalf of potential.
#2. Through Crowdfunding
Crowdfunding is a popular way for projects and startups to raise money from the public. People can donate a small amount of money to your project or startup, and in return, they may get a product or service when the project becomes a reality.
The concept of crowdfunding is not new, but the technique has evolved and has become easier with the availability of the internet and social media. There are also other platforms that entrepreneurs can use to pitch ideas to people to help raise funds. The best part about fundraising is that it can help gauge customers’ interest in your products.
For instance, if the public feels interested and intrigued by your business and your products or service offerings, chances are they’ll help you raise your fund. However, if the crowd seems disinterested, this can be a good indication that you may need to reassess and rethink your product or idea before pursuing other funding methods.
#3. Bootstrapping
Bootstrapping is probably the most common way to fund your startup. This means using your little savings or personal funds to finance your startup until it turns a profit. It’s possible, but it may take time and a lot of commitment. To do this successfully, you may need to spend frugally, start small, and make tough decisions regarding which expenses are essential for your business.
One of the best advantages of bootstrapping is that you can maintain total ownership over your company and may not need to give up any shares or equity. You may not even need to give up any control over decisions as there aren’t any other investors involved in your project. Moreover, you may not have to deal with paying back business loans, especially if some of them have unfavourable terms.
#4. Government Grants
The government provides several grants which can help you start up your business. The first thing you need to do is research the programs available and determine if you meet the criteria to receive a grant.
Usually, you will have to submit a detailed plan, or in some cases, you may need to present this plan to a committee for approval. The good thing about grants is you don’t have to pay them back, unlike a loan.
#5. Venture Capital
Venture capital is a type of private equity or a form of financing that firms or professional investors provide to small, growing businesses perceived to have high growth potential. Startups that demonstrated high growth in terms of the increase in workforce, annual revenue, or both may also qualify for this funding.
VC investments aren’t only limited to monetary funds. In some cases, services can also be provided, for instance, managerial and technical advice. But because startups tend to be uncertain, VC investments tend to have high failure rates.
#6. Business Incubators And Accelerators
These are programs run by established companies or non-profits that provide mentorship, office space, and some seed funding for early-stage businesses in exchange for equity. While many accelerators offer their funding, some may only help you get in touch with investors who can provide seed money for your company.
Venture capitalists usually sponsor accelerators. They run this to scout promising startups since it can be much easier for them to find startups who have already gone through an accelerator than try to sort through thousands of applications from people across the world.
#7. Bank Loans
If you are a small business owner, you may have considered taking out a bank loan to fund your startup. It is one of the most popular ways to fund a startup, especially if you have a solid business plan and you or your partners have good credit.
However, banks require a lot of paperwork, and they can be very strict when it comes to approving loan applications. If your business plan is not well-crafted and your credit is less-than-perfect, it can be challenging to get approved for the loan that your business needs.
Final Words
While funding your startup is one of the most challenging steps in establishing a business, there are many options that you can consider, as discussed in this article. And with the help of the outlined ways above, you can be on a good start in determining which funding approach can work best for you and your company.
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