Raising capital for your business may seem like an insurmountable challenge, but it doesn’t have to be. With the right strategies and perseverance, you can find financial backers who will help your startup grow into the next Facebook or Uber. This article will discuss five strategies you can employ to secure funding for your business idea, ranging from seeking out grants to convincing friends and family to invest in your vision. Each method has its pros and cons, so be sure to weigh the options before you decide which one fits your goals best.
Five Ways to Secure Funding for Your Startup Busines
Crowd funding
As a concept, crowd funding has existed since at least 1774. That’s when English publisher Edward Lloyd launched an appeal in his newspaper asking wealthy readers to invest in his laboratory, which would provide value for all readers by aggregating their knowledge about shipping and agriculture. In return, those who invested would share in any profits made from their investments. This was one of many examples of what social scientists call subscription financing—an early form of crowdfunding. Today, businesses can use crowdfunding platforms like Kickstarter or Indiegogo to raise money directly from consumers. In exchange for funding projects, backers receive rewards (usually a product or service). To date, Kickstarter has helped launch more than 100,000 projects worldwide. On average, each project raises about $5,000 in funding but some have raised millions of dollars. It’s easy to see why so many people are turning to crowdfunding as a way to secure funding for their business ideas. The largest perk? You don’t need your own money or credit history to get started. Instead, you’re borrowing money from future customers and supporters who are willing to pay upfront because they believe in your idea enough that they want it brought into existence as much as you do. So if you’re looking for ways on how to start a business without outside investment then consider using crowdfunding websites like Kickstarter or Indiegogo. With no financial risk involved, you’ll have nothing to lose! And if your campaign is successful, you’ll be able to raise enough capital to bring your startup idea to life. Even better? These types of crowdfunding campaigns tend to attract lots of media attention due to their popularity with consumers and users. A successful campaign can also help build awareness for your brand and create connections with potential investors down the road. For example, after raising over $6 million through its initial Kickstarter campaign, Pebble Technology went on to raise another $15 million in venture capital funding. Many crowdfunding platforms allow you to set up multiple tiers of rewards for backers based on how much they contribute to your project. For example, you might offer a t-shirt and keychain reward tier for anyone who contributes less than $25 while offering an exclusive version of your product or service only available to those who contribute more than $500. While these options may seem expensive compared to other fundraising methods, keep in mind that most traditional fundraising methods come with hefty fees attached.
Family and Friends
Unless you’re a trust fund baby, family and friends are your first go-to when raising money. Use them! They might not be able to give you hundreds of thousands of dollars, but it never hurts to ask. Start by explaining why you’re asking them for help, what your plans are and how much money you need. Then let them know that they can invest as little or as much as they want—the more they invest, though, the greater their share in your company will be. You can also offer perks like equity or special deals if they invest more than a certain amount. If you don’t have anyone who can contribute financially, consider offering them something else instead. For example, maybe you could offer to do some work on their house in exchange for an investment. Or maybe there is something else they have that would be helpful (e.g., office space). It never hurts to ask! Just make sure to follow up with everyone once you start making progress; no one likes being left out. Also, keep in mind that even if someone agrees to invest now, it doesn’t mean they won’t back out later. That said, most people will hold true to their word if they commit early on. And remember: It doesn’t hurt to ask! The worst thing someone can say is no. The best? Yes!
Angel Investors
If you’re looking for big money, angel investors are likely where you’ll find it. These are high-net-worth individuals who either have startup investments as a hobby or want to invest in promising companies that they may later be able to purchase on the cheap. Because of their experience in business, they can often offer valuable guidance and mentorship while providing capital. It’s important that your business idea is well thought out before seeking an investment from angel investors—they will want to see that you have considered all angles and are confident about your plans for growth. Sometimes angel investors can get access through crowdfunding sites like AngelList or IndieGoGo. You can also search Angel Investor groups by location or topic on LinkedIn. Finally, try to meet with potential investors face-to-face when possible. Networking with people you already know and making new connections can both help secure funding. And if all else fails? Have them order your product! There’s nothing like revenue coming in (or soon to come) to boost credibility when seeking outside funding.
Venture Capitalists
As startup costs get larger, venture capitalists are more likely to step in and help fill in funding gaps. These investors may be looking for a piece of your company in exchange for their cash, so think carefully before you take on VCs as backers. Their presence can also signal that you’re not actually startup-level anymore—they have experience helping companies grow and mature into full-fledged businesses. If you do decide to go with VC backing, make sure it’s from a reputable firm and that you know what strings come attached. It’s best to have an attorney review any contracts before signing them. Be aware that some early-stage firms will offer equity investments (or convertible notes) but will expect management control over your business operations. Don’t give up control unless you’re willing to lose control! That’s not necessarily a bad thing if you’re ready to hire professional managers who can add value beyond money. If that’s not the case, then proceed cautiously and keep equity stakes small at first (e.g., <10%). You’ll learn whether or not professional management is necessary once your business starts generating revenue or showing positive signs of growth. Until then, try bootstrapping by keeping expenses low and selling products/services yourself. This way you won’t need outside investment until you’ve validated your idea and have a clear path to profitability.
Government Grants
While government grants can’t be your only form of funding, they can be a fantastic way to gain access to capital without putting you at risk financially. Grants are generally offered on a merit basis, meaning they go towards projects that benefit society. To apply for a grant, you usually need to demonstrate why your idea is worthy of receiving it and provide extensive documentation about how much money you need and how it will be used. It’s important to note that there are no guarantees when it comes to securing a grant; even if you’re awarded one, there’s no guarantee that it will cover all or most of what you need. Still, with some research and persistence, applying for government grants can help get your business off the ground. To learn more about different types of grants available in your area, contact a local non-profit organization. Most offer free advice to those looking to start businesses. There are also plenty of online resources where you can search for specific grant opportunities by state or category—just be sure not to apply for something you don’t qualify for!
Bank Loan
While a bank loan may seem like a typical method of getting startup funding, it should be your last resort. Getting approved for a business loan is easier said than done. Since you are applying with a newly formed entity, you will likely have to jump through many hoops and provide extensive financial documentation. A local bank may also require an established physical location or storefront as collateral, which is difficult if you’re planning on operating solely online or out of an office space shared with other companies until you get off the ground. Additionally, interest rates tend to be higher than those offered by alternative financing methods. If you do decide to go down this route, apply for multiple loans from different banks at once so that if one denies your application, another might approve it. It’s not ideal, but sometimes you need to play hardball in order to secure funding. And finally, always remember that even if you do receive approval for a loan, your monthly payments will eventually add up to more than what you raised. To avoid being overburdened with debt after launch, focus on cutting costs where possible and try not to expand too quickly (or at all).
Personal savings
One of, if not your best option for funding a new business is from personal savings. We’re not suggesting you take a loan out against your home or empty your savings account. Rather, consider how much cash you have sitting in a high-yield online savings account earning less than 1% APY. You might have hundreds or thousands sitting there—maybe even tens of thousands, depending on how long you’ve been saving. If it’s more than you need in a given year, consider redirecting that money into your startup business account instead. It’s likely to be far more productive than watching it grow incrementally while inflation ticks up and eats away at its value over time. Just make sure you leave enough in your checking account to cover regular expenses like rent, food and utilities. That way, if an emergency comes up, you can still pay for it without having to touch your savings or lean on friends and family. The last thing you want is to lose control of one aspect of your life because another one got too demanding.
Non-governmental organization
It is important to note that getting money from governments can take a long time, particularly if you want it during your early stages. Grant application processes can take years, leaving you little choice but to consider other funding avenues. One of these alternatives is non-governmental organisations (NGOs). NGOs are usually set up by businesses or individuals with a mission to promote certain causes and will often offer financial support in exchange for goods or services. This might be an opportunity for you to make connections with people who have interest in what you’re doing and could help further your cause. Make sure to research any NGO thoroughly before approaching them; some may not even accept applications from startups. Also, check out local chambers of commerce or business associations as they sometimes offer grants to new businesses. However, keep in mind that they tend to give smaller amounts than government programmes. For example, organisations like SCORE and similar organisations can offer assistance where entrepreneurs can get free one-on-one advice on running their businesses and learning how to get capital funding through mentorships and training sessions.
Partnership
The most obvious way is to partner with someone who already has money. This approach will probably require you to give up some equity in your business and could be tricky, but a savvy investor may help grow your company substantially and open new doors. Perhaps even more important, a partnership can help bolster credibility in your business. For example, say you’re starting a social media app that helps connect people through common interests. Partnering with an existing firm that specializes in community building will not only make investors more comfortable investing in you, but will also lend credibility and expertise from day one. An investor will know that you have partners who have real experience building a community. It also gives you access to their network of contacts, which might include customers or future employees. An added bonus: If things don’t work out between you and your partner, at least they’re still on board as an advocate for your startup.
Public fund-raising projects
The process of raising money publicly involves soliciting donations from people in exchange for rewards (usually related to your project), just like when you donate money on Kickstarter. The key difference is that instead of giving a donation, you purchase goods or services that help support and/or promote your project. For example, if you’re making a documentary about climate change, you could sell DVDs of it online—but why not set up an online store where people can buy T-shirts with clever climate-change slogans or other items? By offering rewards beyond a simple thank you, some companies have raised as much as $250 million using crowdfunding sites like Kickstarter. In addition to helping fund your startup, public fund-raising projects are also good ways to build buzz around what you’re doing. If you don’t get funded by your target date, no problem: You can always extend your campaign until it’s over. And even if you do meet your goal, keep going! You’ll likely raise more than enough to cover costs and make a profit.
