You’ve just come up with an excellent business idea. You know it’ll blow up. In fact, you’re ready to present it to the world after taking the initial steps of choosing a business model and drawing up a brilliant business plan to help you achieve your goals.
There’s only one roadblock. You have no funds to fuel your startup. Even worse, you don’t have the slightest idea where you can access such funds.
You imagine your brilliant idea remaining just that: an idea. Don’t lose hope just yet.
Startup funding is a headache for upcoming entrepreneurs and it is the largest contributor to stalled projects. You might have the zeal, the passion and drive, but the dollars seem elusive.
If you are in this group of stranded entrepreneurs, this article is for you. Here you’ll learn the various funding options at your disposal and which one will work for you.
This is probably not the route you wanted to take at first. In fact, it isn’t a conventional way of funding because you’ll simply fund the business yourself. Most of the time, you’ll work on the business alone, trying to cut down on expenses.
As much as this path is filled with dark days, you’ll have to start out this way because many people will be unwilling to fund a startup if you haven’t committed any resources to the business. Resources can include the time invested to cover labour costs or saving up money to ensure your business has some months of headway, so you don’t have to look for external funding.
Bootstrapping is a fantastic way of funding your business. On top of the funding, you get a sense of fulfilment and satisfaction from building something on your own. You get to understand your business and you can seek external funding afterwards.
Friends and Family
Networks often start forming from the inside out. This can sometimes start with your closest support network, which includes your close friends and family members. The same applies to fund your startup. Start with this group of people.
It might seem like a long shot for some people, but one factor overrides all others: your relationship with your friends and family members. It is these close relationships you’ll be able to leverage to fund your startup. In addition, chances are that one of them might be aligned with your business, giving you an opportunity to form a perfect partnership.
These funds might not get you to the levels you aspire to, but the moral support will be a much-needed boost in your confidence.
This move is considered personal; therefore, you need to proceed with caution. Friendships and family ties are fragile and it only takes a single disagreement to tear down painful gains. Nevertheless, there are big, global companies that started out through such ties.
Crowdfunding, as the name suggests, is a type of fundraising from a huge group of people making little contributions to your startup. This type of funding has gained popularity among many entrepreneurs seeking initial capital. Some of the renowned platforms include Kickstarter, Indiegogo and Crowdfunder.
This type of funding can not only be used as initial capital, but also for future expansions such as launching new products and services.
Crowdfunding is a fantastic way to get some cash, however, you’ll need to make your proposal count. This means investing a lot of resources to ensure that you come up with a killer campaign.
Government Loans and Grants
Many people brush off this mode of funding their startups. Some don’t even know whether their government offers such lucrative grants and loans.
Small to medium enterprises are the lifeblood of any economy. They help to lower the unemployment rates while offering the government more money in terms of taxes. It is, therefore, in the best interest of the government to throw their weight financially to such businesses.
Most governments focus their efforts on women and youth, and especially those who look into starting technology-based or agriculture-oriented businesses. If you fall into these two categories, you will have a better chance of securing some funds.
You can read about these three loans offered by Government of India under different schemes.
Moreover, there are various levels of funding starting from the federal government, down to states, provinces and cities. To land these funds, search for keywords such as “startup loans” or “startup grants.” In the United States, Grants.gov is a government website offering at least 1,000 grant programs.
Before we take a look at the various types of investors, let’s define an investor.
An investor can be a wealthy or someone with substantial control over some range of assets who invests resources into a certain project. In return, the investor will ask for shares of the business. This means they also have some kind of say in the business.
The funds provided by the investor may come with some terms, such as frugal spending. Among the other requirements is a return on their investment. This is usually after a certain duration, such as a five-year period.
Investors generally fall into three categories: angel, personal, and venture investors.
Venture Capitalists or Venture Investors (VCs): This group of investors look for big investments where they can score huge returns. Most of the time, they fund ideas. You, the recipient of the loan, will be required to pay back the loan after some time.
You can read this list of venture capitalists in India.
VCs take on some amount of risk as well, including the fact that they might not get their entire just right loans back, but they also hope that other areas of their investment will pay off. Despite their readiness to accept some level of risk, VCs are very choosy when it comes to who they fund. In addition, VCs invest in the millions which means if you need funding for a startup, you’ll have to search somewhere else.
Angel Investors: If you’re a startup, this what you’d be looking at. Angel investors are open to young businesses and they will fund your business in exchange for some equity which can be something apart from revenue. These investors are entrepreneurs themselves and often have some form of wealth other than investment funds.
They look to invest in businesses in their early stages of incorporation. Contrary to venture capitalists, these investors might not be part owners of the company. Rather, they may ask for a certain percentage on the return of their investment.
Personal investors: This can be in the form of family and friends as previously discussed in this article.
Accelerators offer more than just money. They bring business growth to the table in a short amount of time, usually about two to four months.
The process involves going through applications and identifying a worthy business. They will then fund the business in exchange for equity. On top of that, you and your team will be enrolled in their program.
This program comes with goodies such as office space and mentorship, among others.
In conclusion, there are numerous ways you can secure funding for a business or startup. Many of these models, however, will depend on your experience and track record. Don’t seek funding without something you can show potential investors.
Get a prototype, or something of the sort, and invest your time and resources in the business. That way, you’ll convince investors with ease.