Some start-up business owners begin thinking of fundraising once their idea has attracted a significant number of people, and gained momentum. Others think of where to find funds before they have actualized their idea. No definitive time or blueprint tells you when to start raising funds for your start-up business. But before you venture into the world of fundraising, it is imperative that you have a workable business plan.
Take the time to study the market pertaining to your business idea, analyze current trends, and have a clear image of the product or service you want to provide. Your business will not be the only one out there, so be vigilant in researching the funding types available. You will need this information to make an informed decision about the kind of fundraising that will be best for you and your business. People often ask, “what are the options available?” There are two main ways a company can raise funds, equity, or debt.
Funding start-ups through debt financing
Debt financing is usually investor-friendly. It is a loan offered to a business that is repaid with a certain amount of interest, and within a given period. SMEs and banks offer various unsecured products or secure capital loans. There are several financing firms, even though this particular option has a higher interest rate, and you are required to make monthly payments. Family and friends are another possible resources to help fund your start-up. Other debt financing options are the use of a credit card, online loans paid via installments, using your vehicle as collateral to secure a loan, and shylocks. This kind of funding strategy is easy to obtain since the lender is not looking to be involved in the daily operations or decision-making of your business. However, this is a debt, which you must clear even if your firm does not turn out as you anticipate. Failure to repay may cause the lender to seek legal redress.
Funding start-ups through equity funding
Equity funding involves having your business valued, as well as assessing the market share and the price that investors can pay for available shares in your company. Since a start-up business is in its initial stages, it will not be easy to determine its actual value. This may not be a viable option for the initial funding stages, since it involves some legal complexities.
There are still quite a few options you may try, and if done correctly you may lead your start-up in the right direction. Below are some of the options to kick-start your start-up funding.
1. Angel investment
Angel investments typically involve funds used to launch or propel a start-up in its initial stages. Usually, you only need a great business idea. Investments of this type are often provided by former entrepreneurs who wish to take the risk and may invest money even before a company has shown any earnings – just a fantastic idea. If others see your business plan as a promising venture, there may be angel investors willing to back you financially. While most of them only focus on helping to propel a business in its beginning, they may be compensated to a degree with convertible debt or equity. These investors are not looking to be heavily involved in any of the technicalities of your business. “Angels” may be willing to invest if they are intrigued by your ideas, and see the probability of it succeeding. You may consider 1000 Angels, since it is one of the most famous angels’ networks of investors.
2. Business accelerators and incubators
Business accelerators and incubators may not just invest funds in your business They may also connect you with the right business partners, mentors, and other investors. The business world has many accelerators and incubators, and it is important to know a few. They include Seed Sumo, Bits & Pretzels, IncuBus London, and Rocks. Your start-up can grow at a faster rate under their guidance, since you may access tools with greater ease. You also have a vibrant network of people you can rely on as you grow your business.
3. Venture capitalists
Venture capitalists invest in a start-up business after you convince them with your business model, or trends of growth. They invest when they see prospects for high returns, so it’s vital you create a business plan that will grab their attention and interest.
Crowdfunding is a modern trend. It involves pooling together funds, usually small amounts, from a large number of investors. It can be easier to persuade a significant number of people to invest smaller amounts than to convince one or two investors to put in a large sum. In this type of funding, you do not need to waste time looking for one investor to provide everything you need. If you have an effective business plan, it is possible to surpass your target with crowdfunding.
5. Business grants
Almost every country has funds or business grants set aside for start-ups. Government aside, there are private organizations that support areas such as research, education, and technology. In your fundraising research, find the right organizations within your territory and apply for grants.
6. Fund the start-up as an individual
The cost of starting a business is not as high as it used to be. Most start-ups are self-funded, an initiative commonly called bootstrapping. It may take more time than you would like to save the money you need to start your business, but there are benefits. If you do not give up, you are assured that your business belongs to you alone. There is no free money in any funding option, and they all require your commitment and hard work.
7. Solicit funds from friends and family
As a rule of the thumb, any serious investor in your business will first need to know how much you are committed to your cause. If you cannot gain the trust of your friends and family, you cannot reasonably expect to do so from outside investors. Your start-up can be funded, wholly or in part, by your family or friends.
8. Ask your business partner or customer for an advance amount
If your business is a viable option, you cannot miss a serious customer or potential partner. Find someone like-minded who might be willing to pay a down-payment for you to start your business. Such agreements include white-labeling.
9. Credit cards
If you love “Shark Tank,” you know Mark Cuban does not like this idea. But it’s your decision whether or not to choose this short-term solution, so if you decide to go this route, play smart so you do not lose big. Make the payments every month, and do not lag behind. While it may not be the best option, your business can rely on your credit card for it to remain afloat.
10. Find a private lender
This is one of the options that many entrepreneurs love. A business founder can quickly gain funds from a private lender without involving the government. It is a convenient way to begin operating. My Business Funded is well-known in this arena. You only need to worry about where to get customers.
You should not base your ability to start a business on capital, and where to find it. If you think through each of the options above, the most feasible way is probably quite clear to you by now. Fundraising for your business does not need to be a nightmare. Make healthy choices, get started, and watch your business grow!
What other fundraising options can you think of? Let us know in the comments below.