What was your first thought as soon as you got the idea to start your business? Was it – how can I finance my startup? Or how will I grow it?
According to a recent study by Fortunely, nearly a third of small businesses fail due to a lack of funds. So if you are concerned about funding your startup, we cannot blame you.
Every individual who aspires to build their business can agree that no matter how great the business idea seems or how fast you find product-market fit, it needs funds to take off and generate profit eventually.
Keeping all this in mind, we have created a list of 10 ideas on how to raise funds for your startup. These ideas are workable and tried & tested by entrepreneurs globally.
1. Crowdfunding Your Business:
Crowdfunding is a relatively new method of funding a startup that has grown in popularity recently. It’s the same as accepting a loan, pre-order, contribution, or investment from multiple people simultaneously.
This is how crowdfunding works: A business owner will post a detailed description of his company on a crowdfunding platform. He will discuss the goals of his business, plans for profit, how much funding he requires and why, and so on, and then consumers can read about the company and donate money if they like the idea. Those who contribute funds will make online pledges with the promise of pre-purchasing the product or making a donation. Anyone can contribute money to help a company in which they strongly believe.
2. Bootstrapping Your Startup
Self-funding, also known as bootstrapping, is an effective method of startup financing, particularly when you are just starting. First-time entrepreneurs frequently struggle to obtain funding without some traction and a plan for potential success. You can invest from your savings or solicit contributions from family and friends. It will be simple to raise due to fewer formalities/compliances and lower raising costs. Usually, family and friends are willing to negotiate an interest rate.
Self-funding or bootstrapping should be considered a first funding option because of the benefits. You are bound to business when you have your own money. Investors later consider this to be a good point. However, this is only appropriate if the initial requirement is small. Some businesses require funds from the start, and bootstrapping may not be an option.
3. Get Venture Capital For Your Business:
It is where the big bets are placed. Venture capital funds are professionally managed funds that invest in high-growth companies. They typically invest in a company in exchange for equity and exit when it goes public or is acquired. VCs provide expertise & mentorship and serve as a litmus test for where the organization is heading, evaluating the business in terms of sustainability and scalability.
A venture capital investment may be appropriate for small businesses that have progressed past the startup stage and are already generating revenue. Fast-growing companies with an exit strategy, such as Flipkart or Uber, can earn tens of millions of dollars to invest, network, and grow their business quickly.
However, a few drawbacks exist to using Venture Capitalists as a funding source. First, regarding company loyalty, VCs have a short leash and frequently look to recover their investment within three to five years. Therefore, venture capitalists may be less interested in you if your product takes longer than that to reach the market.
They typically seek larger, more stable opportunities and companies with a strong team of people and good traction. However, you must also be flexible with your business and sometimes give up a little more control, so this may not be the best option if you are not interested in too much mentorship or compromise.
4. Get Angel Investment In Your Startup:
Angel investors are individuals who have extra money and a strong desire to invest in new businesses. They also collaborate in network groups to screen proposals before investing. They can also provide mentoring or advice in addition to capital.
Many well-known companies, including Google, Yahoo, and Alibaba, have benefited from the assistance of angel investors. This alternative form of investing occurs in the early stages of a company’s growth, with investors expecting up to 30 percent equity. They prefer to take more risks in their investments in exchange for higher returns.
- Vendor Financing
Obtaining financing for tangible assets is far simpler than obtaining a cash advance on future sales or a personal loan. If you require tangible products for inventory, you can persuade many manufacturers and distributors to defer payment until you sell the goods. It is known as vendor financing.
It essentially means extending the standard 30-day payment terms to months or longer, depending on your creditworthiness and additional fees. As a result, it liberates valuable capital for payroll and other marketing expenses.
Many equipment finance companies provide 100% financing for everything a startup requires, from servers to computers to filing furniture and fixtures.
6. Get Funding From Business Incubators & Accelerators:
Incubator and Accelerator programs can provide funding for early-stage businesses. These programs, which can be found in almost every major city, help hundreds of new companies each year.
Despite being used interchangeably, there are only a few critical differences between the two terms. Incubators, like a parent to a child, nurture the business by providing shelter, tools, training, and a network. Accelerators do similar things, but an incubator helps/assists/nurtures a business to walk, whereas an accelerator helps it run/take a giant leap.
These programs typically last 4-8 months and necessitate a time commitment from the business owners. However, using this platform, you will also be able to connect with mentors, investors, and other startups. Another advantage for startup founders is that they stand a chance to get funded while studying. Most entrepreneurs start to work on the idea during their university days, so this funding method can be excellent for them.
Companies like Dropbox and Airbnb started with an accelerator called Y Combinator in the United States.
- Raise Funds By Winning Contests:
The increased number of contests has dramatically aided in maximizing fund-raising opportunities. In addition, it encourages entrepreneurs who have business ideas to start their own companies. You must either build a product or develop a business plan in such competitions.
Winning these competitions may also result in media attention. To improve your chances of winning these contests, you must make your project stand out. You can present your idea in person or pitch it through a business plan. It should be thorough enough to persuade anyone that your idea is worth investing.
- Raise Money Through Bank Loans:
Going for a small business loan is viable for startup owners. Some banks specialize in lending to small businesses, but banks have historically been wary of lending to small businesses. Hence, qualifying for a loan can be difficult. However, alternative lending companies may be better suited to assist you in getting your business off the ground.
However, business owners must be careful when choosing and connecting with a lending firm, as some might be fraudulent.
In the United States, websites such as Kabbage can help you get a working capital loan online in minutes. Unlike traditional lenders, Kabbage approves small business loans based on real-world data rather than just a credit score.
- Peer-To-Peer Lending
This is a process in which a group of people band together to lend money to one another. It has been around for a long time, with examples such as small business groups or ethnic groups supporting similar efforts.
Look for a successful entrepreneur peer willing to fund similar new ideas in the startup context.
- Try Pay To Work Policy
If you have a great business idea, you can ask for donations for a position in your startup.
About One’s Joanne Lang evaluated team members based on their willingness to invest – given their circumstances. The company promoted founding members who invested and demonstrated commitment to the venture in the management hierarchy.
Things To Remember Before Raising Funds
- Know Your Business: Every business differs in nature. FMCG is entirely different from the tech business, and leading an ecommerce store is different than managing a web design app. Hence, both companies require different scales of funding at various levels.
- Do Not Rush: Some business owners get too excited with their idea and start splurging funds. These hasty decisions and spending can cause major damage to businesses in the future. A wise entrepreneur always moves forward with clarity and certainty; even then, they have set budgets for each process. For example, app development is expensive. Hence, startup founders should create a prototype rather than spend too much on building the final app. They should start working on the final version after approval from peers and a few customers.
So, these are the ideas to help you successfully raise funding for your startup. Building a business is challenging but rewarding, given that you take the proper steps. When a good idea meets a great team, they result in a profitable business.
To build a remote team for your startup, you can check out Wishup.
Author’s Bio
Mayur Bhatasana is a Link Building Consultant for SaaS Companies and Content Marketer at Jeenam Infotech .he has covered a wide range of topics. Now, he is focussing on SaaS, and remote work.
