You’re probably aware of the rather sad statistics about startup failure. One of the biggest reasons why most businesses fail in their first months or years is due to the lack of proper funding, especially seed funding.
You may have the finest business idea and all the energy in the world, but without a steady flow of the green blood that is money, the idea simply cannot become a reality.
Simply put, if you wish to beat the odds, securing enough startup funding is pivotal. Here are seven tried-and-true ways to do just that:
Today, as the barriers to entry for most types of businesses have gone down, more and more budding entrepreneurs are turning to their own cash reserves to kickstart their passion projects.
Self-funding, commonly known as bootstrapping, refers to funding your startup idea with your own money, instead of looking for investors or loans. As all the money invested would be your own, it will not dilute your ownership of the company nor will it split the decision-making powers with any other person (except your co-founders, if any).
Furthermore, there won’t be a need for financial formalities or delays, the capital will be available to use from the very first day of launch. Also, if you are truly motivated and believe in your idea, bootstrapping can serve as an added push to not let yourself down.
As the name suggests, crowdfunding refers to turning to the masses for small monetary contributions aimed to raise a target capital that can help turn a promising business idea into a reality.
That is, startups or individuals who are seeking funds, describe their reasons for the requirement of funds, which could be for starting a business, launching a product, and so on. As an entrepreneur, you create a profile that provides potential investors with all the information about your idea so as to convince them to support you.
People interested and convinced in the company or the product may choose to donate any amount they can. Numerous platforms such as Kickstarter, Indiegogo, Patreon, and GoFundMe allow aspiring entrepreneurs and creatives to raise funds in different ways.
With some convincing power and a strong pitch, crowdfunding can easily meet and even exceed your capital requirements.
Venture capitalists, or VCs, are (typically wealthy) individuals or groups who specialize in funding startups and upcoming entrepreneurs.
So, venture capital is the financing provided by investors to startups and new businesses that show long term promise. Such investors have an eye for business ideas with great potential and though the risk of investment is usually quite high, they are experienced enough and do intensive research before they invest.
Besides, their profit percentage is also substantial and they usually get a part of the equity as owners for the capital that they invest.
Note that as VCs bring a lot of money to the table, they carry a lot of sway in any business they choose to invest in. In extreme cases, a VC can even fire the Founder of the startup. So, make sure that you understand their goals and expectations from the business before accepting their funding.
Frequently confused, angel investors are not the same as venture capitalists. An angel investor is an individual investor (not a firm or financial institution) who backs up a company by providing funds at the very early stages of the startup.
High net-worth individuals are often interested in supporting local startups or credible individuals with a cogent business idea. While most will want equity share in exchange for funding, some may be willing to exchange funding for convertible debt.
More often than not, angel investors are current or former entrepreneurs themselves. This experience can prove very helpful in times of critical decision-making. And while profitability is, of course, their primary concern, many provide support out of sincere interest in the idea and the desire to see the startup become a success.
Startup incubators and accelerators help young and upcoming startups in solidifying their foundations.
Essentially, incubators or startup accelerators are organizations that support new startups and small businesses by providing valuable advice, mentorship, training, workspace, and/or financial resources at either a very low rate than that of market or even free of cost. Some even provide seed funding for small businesses.
Most incubators are associated with universities, community development organizations, large enterprises, or other social benefactors.
A huge plus point of this approach is that many incubators and accelerators work with local businesses, so you won’t be competing on a national level for a limited number of spots. What’s more, a local connection early on may help your startup form a business relationship that bears more fruit in the long run.
Bank loans are a conventional and convenient way of raising funds. Banks provide loans for various reasons, such as to purchase assets/property, to finance a new company, for a commercial mortgage, and so on.
A bank loan is a secure way to fund your startup because banks are under the strict supervision of the law. Plus, nowadays startups can get loans fairly easily from banks if the prospect of the business looks promising enough. So, this time-tested method of funding new businesses definitely deserves your consideration.
Startup Idea Contests
Finally, startups can garner great funding by winning business idea competitions and contests.
Each year numerous competitions take place wherein budding entrepreneurs present their ideas for a chance at winning a substantial sum of money. The best part is that the prize money isn’t a loan, so you can directly use it to fund your startup without worrying about paying it back, and your idea becomes strongly validated.
You’ll likely have to lay some serious groundwork if you want a chance at winning, but if you do win, it’s an amazing way to secure some funding.
And although a sizeable chunk of the winnings goes to taxes, the amount that is left at hand can still do wonders for launching your startup. Thus, aspiring entrepreneurs should keep an eye out of such contests.
So, as you can see, there are plenty of ways to get funding for your startup. Pick one wisely, and get busy hustling!