Whether you’re just starting with an idea or have already begun developing a prototype, you’ve probably thought about the need for a startup or venture capital. Startup funding is the driving force behind any endeavor. The good news is that you no longer have to waste time going from investor to investor in the hopes that one of them will bite.
You may only partially eliminate face-to-face meetings, but there are now methods to increase the likelihood that your presentations will be seen and heard by knowledgeable and interested investors in any market. A high-pressure in-person meeting may be optional if investors have had time to learn about you and what you do beforehand.
There are a variety of ways to fund for startup, such as applying for a small business loan or approaching family and friends. All these options may complicate your search. It’s easy to spend a lot of time scrolling through search results before you find something worthwhile.
We’ve done the legwork for you and compiled a list of resources to help your early-stage startup get the exposure and funding it needs to leave the garage, start making money, and impact the world.
Ways to raise Funds for Startup
1. Bootstrap Your Startup
There may be more exciting options, but using your savings to fund for startup is the most practical. Why? Sharing as little as possible of your business is preferable. However, something else is at play when a startup is funded by its founders.
Bootstrapping is ideal for anyone ready to take the plunge and start their own company. To “bootstrap” a business means to launch solely using in-house resources and capital rather than seeking outside investment. It’s a fantastic way to maintain full control of your young company and learn to fend for yourself. However, bootstrapping comes with its drawbacks. Using your own money to start a business is risky because you will lose all your savings if it fails.
Successful bootstrapping puts you in a better position to negotiate with investors and present a more compelling investment opportunity. You’ll be able to negotiate better terms, and your investors can rest easy knowing that your business has a good shot at succeeding.
Bootstrap your company for as long as you possibly can. Although it lacks the glamour of receiving a significant investment, a business that is funded solely through the owner’s own efforts is entirely under its control.
Successfully Get Started With Little or No Money
- Get a part-time job to supplement your primary enterprise.
- Get everyone who helped found the company to chip in some cash.
- You should only launch the company if you have enough money to keep it running for at least three years.
2. Look for Business Startup Loans
Many small and medium-sized businesses rely on loans as their primary source of financing. Think about the fact that every lender has their own set of benefits, such as speed of service or flexibility of repayment. Finding a lender who is a good fit for your circumstances is important.
Loans are typically more difficult for new businesses to obtain than they are for more established ones. Loans are more readily available to entrepreneurs who have both a strong business plan and a good credit history.
Bank loans are another option for funding a new business. The typical interest rate charged by a bank ranges from 12% to 15%. To get the bank’s money, you’ll need to put up a guarantee. You can use the papers associated with your home or any other property you own.
If your startup fails, you will lose your business and assets, and a bank loan is not a safe option.
Suggestions for Securing a Business Loan from a Financial Institution:
- Since it is still early in the company’s development, you will be able to secure a personal loan. You should do your due diligence before applying for a loan because banks are very strict about loan deadlines.
- These loans have a repayment period of between one and five years. Even if your credit is excellent, you can expect to pay anywhere from 8% to 17%. You should know that getting additional funding for your company will be extremely difficult while repaying this loan. Since paying off debt is a high priority for most investors, that’s not a good sign for a company seeking funding.
There’s only one valid reason to get a business loan: to get the ball rolling. In an ideal scenario, you would be doing this because your business is already successful, you have a clear repayment plan that won’t put an undue strain on your company, and you don’t want to give up equity.
3. Get Startup Funding From Family and Friends
To put it mildly, this one presents a challenge. It looks and sounds great at first glance, and it’s like getting a startup loan but without the hassle. You may be able to borrow money from loved ones at no interest or a minimal rate. What’s the problem, as they’re also much more adaptable regarding equity distribution?
People in your network may be rooting for you, but if you ask for and accept donations from them, they become active participants. It’s as if you suddenly have no control over your own life. Even if you control the majority of the shares in a business, your relatives may have their own opinions on how things should be run.
It’s a tough call, but many entrepreneurs get started with a little help from their friends and family. In many cases, the strain of doing business together destroys the previous friendship or romantic relationship.
Nonetheless, it deserves serious thought as a potential solution. If you lost your rich aunt’s money, she probably won’t invite you to Thanksgiving this year, but she also won’t throw you out of the house.
Business funding from family and friends: how to approach the conversation
- Professional touches include acknowledging the commitments and providing a list of possible monetary resolutions.
- Put on display your business plan and monthly updates.
4. Raise Startup Money Through Crowdfunding
Crowdfunding has, over the years, earned a reputation for being a half-baked funding strategy predicated more on hope than on practical experience. You aren’t receiving a monetary gift, and your newfound legion of financiers is counting on you to deliver substantial returns on their investments. You should make this work with resourcefulness and a firm grasp of what you have to offer monetarily.
“Crowdfunding” refers to a method of raising money whereby a company solicits financial backing from a large group of people online, typically in exchange for some form of equity.
Typically, this entails a private company making numerous, individual requests for modest donations. As opposed to the standard method of raising capital, which involves a small number of angel investors or venture capitalists contributing sizable sums, this method allows many more people to contribute smaller amounts to your business.
Investors will receive equity in your company in exchange for their financial support, but this equity will have a lower trading price than publicly traded stocks. Additionally, crowdfunding is governed by looser regulations than initial public offerings.
Crowdfunding can take many forms, such as
- The term “equity crowdfunding” refers to a method of raising capital online whereby backers are offered equity in a company or a claim on future profits from a particular product.
- Investors who participate in debt crowdfunding lend money to a company at relatively high-interest rates, spreading their overall lending risk across many smaller loans.
Crowdfunding through monetary contributions and in-kind rewards, where the company advertises a fundraising goal and solicits contributions from the public in exchange for a stake in the company or the finished product.
Crowdfunding is cutthroat, so you shouldn’t expect a smooth ride. However, crowdfunding could be the perfect strategy for your company if you’re willing to put in the effort. Check out global crowdfunding platforms for assistance.
Crowdfunding sites like Kickstarter, Indiegogo, and Patreon let regular people buy products in exchange for supporting a startup. Many successful startups have used the crowdfunding strategy.
Advice for Successful Crowdfunding:
- Develop a groundbreaking solution to an existing issue, product, or prototype.
- Create video demonstrations of the product in action.
If you wish to know how to shortlist a crowdfunding company, read the blog.
5. Apply for Small Business Grants
The U.S. government provides low-interest loans and even grants to the heads of small businesses. For financial reasons, it makes sense for the government to back entrepreneurs. Competing internationally becomes much simpler when your economy is supported by five or six hugely successful companies.
What does this imply for you? Start-ups in the fields of technology and science have an excellent shot at winning over the government with offers of free funding. Furthermore, you should be able to obtain federal and state grants.
In the United States, startups can apply for numerous government grants. However, there is a cost associated with applying for grants. Funding opportunities listed on USA.gov are restricted to non-profit endeavors. Only in the United States can loan money be obtained for for-profit businesses. However, the government may provide funding if you are not a U.S. citizen.
Guide to Government Funding
- With a business plan in hand, applying for government grants becomes much easier. Together with the participating lender, you must create a loan package. In the event of a default, the government can make the necessary payments.
- When it comes to the number of employees your business can have, some governments are much more stringent than others. Keep in mind that you should check them out.
6. Venture Capital
First, you should know that this investor is only right for some entrepreneurs. You should know from the get-go that VCs are interested in investing in technology-driven businesses with high growth potential in areas like IT, comms, and biotech.
In exchange for a stake in the company, venture capitalists back ambitious but risky endeavors. This entails selling off a portion of your company to an outside investor. The sale of company shares to the general public is a common way for venture capitalists to profit from their investments.
Many venture capital firms seek out new businesses willing to accept funding in exchange for equity. Additionally, you can connect with them personally by visiting their websites or attending startup events. Attending startup pitch events is the best way to connect with venture capital firms. In the popular TV show Shark Tank, contestants pitch their businesses to a panel of “sharks” for potential financial backing.
Strategies for Engaging Venture Capital Organizations
- Invest in people who know what they’re doing and can help your company succeed.
- Make a game-changing product, and venture capital firms will accept your application.
- Investment companies care only about how much money they can make from your startup. Their goal is to multiply their investment, and they will gladly part with their money if you can provide them with that through your product.
An in-house venture capital group at BDC backs innovative businesses with an eye toward the future. It invests in high-growth startups like other VC firms, prioritizing large-scale interventions when a young business requires substantial capital to break into an established market.
7. Angel Investors
Angel investors, also known as “seed capitalists” or “angel syndicates,” typically provide initial funding for start-ups or early-stage companies owned by others. Leaders in their respective fields bring invaluable technical and/or managerial expertise to the table, in addition to years of experience and a wide circle of contacts.
Investors known as “angels” typically put up between $25,000 and $100,000 in a company’s early stages. Institutional VC firms typically invest $1 million or more at a time.
Investors demand the ability to monitor corporate decisions in exchange for taking on financial risk. In practice, this means getting representation on the board of directors and promises of openness. Finding an angel investor to back your business is a breeze if you have the right connections.
Guide to Obtaining Angel Investors’ Money
- Avoid waiting for the perfect pitch time and focus on early relationship building. It’s impossible to predict when you’ll strike it rich.
- Create a worthwhile offering and gain as much traction as you can. Keep your distance and wait for investors to approach you.
8. Startup Incubators
Most business “incubators” or “accelerators” cater to startups in the high-tech industry by helping them through the early stages of growth. On the other hand, there are incubators for regional economic development that aim to foster new employment opportunities, redevelopment, and the hosting and distribution of services.
Incubators typically allow new businesses and other startups to share their space and their administrative, logistical, and technical resources. A business incubator may allow a start-up to use its labs at reduced rates during the product development and testing phases.
As a rule, the incubation period can last up to two years. Most incubators only house businesses until their products are ready for commercial production, at which point the company is on its own.
Companies that receive funding like this typically work in cutting-edge industries like biotechnology, IT, multimedia, and industrial technology. The five-year survival rate of businesses that received assistance from an incubator is higher.
How to Get into a Business Incubator:
- Possess a product that can be used. And be receptive to advise from those more experienced than you.
- Connect with successful people in your field. Discover how to make people want to buy your product.
9. Startup Accelerators
Think of an accelerator as the next step in your education as a startup’s founder. First, you should ask yourself:
Your startup may be doing well without the help of an accelerator. The MVP is often required by accelerators (MVP). Create a minimum viable product first. You should also check that the product is available for purchase. If the product isn’t already on store shelves, accelerators are unlikely to back it. Accelerators, in contrast to incubators, are short-term and heavily reliant on mentorship.
Seminars are the primary educational format for accelerators. The crucial query now arises. How do startup accelerators provide initial capital for new businesses? Numerous accelerators offer startups funding in exchange for a stake in the company.
How to Choose an Accelerator to Join
- Reduce everything you have to say to its most compelling sentence or two.
- Only after your startup has gained traction will accelerators take notice.
- The majority of accelerators will facilitate introductions to potential investors for your startup. Ensure that your product actually solves issues.
10. Pitching Competitions
Pitch competitions are one option for securing initial capital for a new business. Those who want honest critiques of their startup ideas should enter a pitching competition. Investors, or “sharks,” on the show “Shark Tank,” offer funding in exchange for a stake in a new business. The best way to get involved in pitching competitions is to attend local startup events. Participating in the pitch competition could cost you some money.
A Guide to Competing in Pitch Contests
- To win a pitching competition, you need a truly groundbreaking business plan.
- Following that, select a pitch deck that is easy to understand and effective.
- Ideas that stand out from the crowd are usually what judges look for in pitch competitions. If you’re going to pitch your startup idea at a competition, put some thought into making it stand out.
Conclusion
Money being tight as an entrepreneur is nothing new, and it’s natural to consider the option of startup funding. What’s important for you to keep in mind is that finding the right funding can make or break your business.
Take the time to consider your options carefully. If you can afford to bootstrap, do it for as long as you can. No matter what, protect yourself and your business so that it can develop properly over time.
FAQs
What are the most common sources of startup funding?
There are several sources of startup funding, including:
- Angel investors: High net-worth individuals who invest in early-stage companies.
- Venture capital firms: Investment firms that provide funding for high-growth startups in exchange for equity.
- Crowdfunding: A method of raising funds from many people, typically via the internet.
- Incubators and accelerators: Organizations that provide funding, mentorship, and resources to help startups grow.
- Bank loans: Traditional lending institutions that provide loans to startups.
- Government grants: Funds provided by government agencies to support the development of new technologies or businesses.
How do I approach investors for startup funding?
To approach investors for startup funding, you should:
- Prepare a well-researched and compelling pitch deck that outlines your business plan and financial projections.
- Identify potential investors who are a good fit for your company, such as those with a track record of investing in similar businesses or industries.
- Network and build relationships with potential investors through events, referrals, and other means.
- Reach out to potential investors with a clear and concise pitch, highlighting the key points of your business and why it’s a good investment opportunity.
- Be prepared to answer questions about your business, including its strengths and weaknesses, financial projections, and plans for growth.
What factors do investors consider when deciding whether to invest in a startup?
Investors consider several factors when deciding whether to invest in a startup, including:
- The founding team: Investors want to see a strong and experienced team with a track record of success.
- The market opportunity: Investors look for startups that are addressing a large and growing market with a unique solution.
- The product or service: Investors want to see a well-developed product or service with a clear value proposition.
- Financial projections: Investors want to see realistic and attainable financial projections that demonstrate the potential for growth and profitability.
- Competitors: Investors consider the competitive landscape and the startup’s ability to differentiate itself from its competitors.
How do I value my startup for funding purposes?
Valuing a startup for funding purposes can be challenging, as there is often limited financial performance data and a high degree of uncertainty about future growth. Some common methods for valuing startups include:
- Comparable company analysis: This involves comparing similar companies’ financial metrics and valuations to determine a range of values for your startup.
- Discounted cash flow (DCF) analysis: This involves projecting future cash flows and discounting them back to their present value to determine the value of the company.
- Option pricing models: This involves valuing a startup as if it were a call option on its future growth, considering the risk and uncertainty associated with investing in a young company.
How do I negotiate the terms of a funding round?
When negotiating the terms of a funding round, it’s important to consider the following:
- Equity: The amount of equity you are willing to give up in exchange for funding.
- Valuation: The valuation of your company, determines the price per share of your company.
- Control: The level of control you are willing to give to investors in exchange for funding.
- Liquidation preferences: The terms under which investors can receive their money back in the event of a liquidity event, such as an acquisition or IPO.
- Vesting: The terms under which founders and other employees will vest their equity over time.
- Other terms: Other terms, such as board representation
