The first step in getting the funding you need for your startup is understanding the general rules and guidelines behind startup funding. Before you even begin applying for funding, you need to have a number in mind. This isn’t a random number or how much you would like to get. This is an exact number you’ve reached using plenty of research. You also need to understand where you can look for startup funding. There are numerous places you can go for funding, and they all have their own advantages, disadvantages, risks, and requirements.
When you’re looking for funding for startups, you have to weigh the pros and cons of each option. You also have to know what you qualify for and decide what you’re willing to compromise on to turn your startup dream into a viable business. The following are startup funding options that include some of the most common types, plus some alternative options that are just starting to gain traction.
Funding your startup yourself
Perhaps the most common type of startup funding is using your own personal funds and savings to get your business going. This method of funding is also called bootstrapping. The main advantages of self-funding is that you don’t have to ask other investors for help, so you can retain complete control of your business, and any profits your startup makes can go right back into your pocket. However, it may take a while to save up the amount of money you need to start your business this way.
Asking your friends and family
Another common type of startup funding is asking your friends and family for help. Many startup business owners go to this source before they try to get professional investors on board, because it’s typically easier to get loans from friends and family. Additionally, a lot of professional investors want to see that you already have a financial commitment from this source before they’ll offer you money. They want to make sure your friends and family have enough faith in you and your startup to offer their own money.
Startup business grants
While frequently overlooked, startup business grants are often distributed to startups that support important causes and new technologies, including medicine, social needs, and education. One of the biggest advantages of startup business grants is that the government doesn’t demand control of your business or charge interest. However, the process to get this funding is long and grueling.
If you’re interested in pursuing this line of funding, one smart approach is to work with a professor at your local university. The government tends to favor grants associated with commercializing products over those for academic study. However, if you can get a professor to use his or her experience to complete the application and publish the results, you both win.
Online crowdfunding is one of the newest funding options available to startups. One advantage of a crowdfunding campaign is that popular websites like Kickstarter make it possible for nearly anyone to start one. However, you typically need a unique product that can gain a lot of traction through social media sharing to have a successful campaign.
You can use an online crowdfunding campaign to raise money a few different ways. First, you can get online pledges by offering a reward, like a T-shirt or special experience. You can also let people pre-buy the product for a later delivery. Finally, you can simply ask for a donation to get your startup running.
Startup incubators are universities, companies, or other organizations that offer resources such as cash, consulting, marketing, laboratories, or office space to startups. They offer these resources completely free or at a lower cost than you can usually find on your own.
Since startup incubators provide such a valuable support system to fledgling companies when they’re most vulnerable, entrepreneurs who start their business at an incubator have a higher success rate than those who go it alone. However, startup incubators are selective about which businesses they let in. As a result, you need a solid business plan to show your startup idea can grow into a standalone business.
Angel investors are high-net-worth individuals interested in supporting startups. Some angel investors are willing to offer up to a million dollars for qualified startups, and they do so in exchange for ownership equity in the company. If you’re interested in finding an angel investor, you’ll need to attend local networking events. It helps if you can find an angel investor who understands your industry and your passion. Since angel investors are using their own money, they’re very particular about the businesses they decide to invest in.
To increase your odds of attracting an angel investor, you’ll want to incorporate your business right away. You’ll also want to make sure you have a clean and easy-to-use website and that you’ve filed for any patents or trademarks to protect your intellectual property. You’ll want a solid business plan and, if possible, you should build a prototype of your product. Finally, you’ll increase your odds of landing an angel investor if you can show you already have customers on board who are willing to pay for your product.
Line of credit or loan
A line of credit or loan is another avenue you can pursue for startup funding. Unfortunately, many banks aren’t interested in providing a loan or line of credit to a startup business unless you’re willing to offer substantial personal collateral, such as your house, or you have very good credit history. However, if you need a small infusion of cash, you might get a U.S. Small Business Administration loan. You’ll still have to go through a commercial bank to get these loans, and they have a long approval process. However, they offer a low-interest rate loan because the government backs them.
Venture capital investors
Venture capital investors aren’t for every startup. In fact, they’re only for startups that need $1 million or more to get going. Venture capital investors will also take a large percentage of your company’s equity for their contributions. Additionally, the process of obtaining a venture capital investor isn’t easy. Expect to spend at least six months searching for the investor and providing all the necessary information to close the deal.
If you’re interested in trying this funding option, begin your search within your local network of entrepreneurs. A lot of venture capital investors will give you around 30 minutes to one hour to pitch your business. Therefore, you need a precise presentation that delivers your message and shows your strategic growth plan.
If you can’t get startup funding through any traditional channels, you might want to consider forming a partnership with a more established company, a complementary business, or a major customer who wants to help you develop your product. With this option, you’re looking for someone who will give you an advance on royalty payments to finish your development. Your best way to get funding through a partnership is to find a company or person who has a strategic interest in helping you develop your product.
If you can’t find startup funding through modern means, you might have success turning to the age-old practice of bartering. Bartering can work with both goods and services. For example, you can exchange equity in your company for accounting or computer support. If you want to attempt bartering, make sure you know what your product or service is worth so you’ll get a fair deal. Plus, even though bartering is an old-fashioned way of doing business, it doesn’t hurt to have everything in writing so there’s no confusion or misunderstandings.
Whether you try one of the newest ways of raising startup funds or go for something more traditional, there are plenty of options out there for getting the money you need to get your startup going.
Growing from a few to a few hundred employees takes strategy and the right space.