Raising Capital: 6 Ways to Fund Your Startup
No matter the growth stage of your startup, you need some resources at your disposal. But for most startups, the challenge of raising capital can be exhilarating. This could mean the difference between success and failure. So, what options do you have for your funding? Without financial backing, your company may crumble. In this guide, we’ll discuss 6 ways to raise capital for your business.
1. Crowdfunding
Crowdfunding is a strategy where people pool funds together to start a business. You should give a detailed description of your business and state how much money you need.
Unlike other methods, Crowdfunding eliminates the intricacies involved in placing your business in the hands of investors. It also has the potential of attracting venture-capital investment in time.
Why should you consider Crowdfunding as a financing option? Besides financing, it helps in marketing your products or services. And because you fund your business through several people, you can provide some incentive to those who invest. Some of the best-known Crowdfunding sites are Kickstarter, Indiegogo, and GoFundMe.
How can you launch a Crowdfunding campaign? You should have a video pitch that explains why you need funds and the value of your product. But here is the thing – not all Crowdfunding platforms are the same. You should focus on those that allow for customization. If you have a website, you should ensure your story is memorable and meaningful to prospects.
To succeed in your campaign, you should choose a platform with no restrictions or deadlines. Since Crowdfunding is more than just raising money, you can increase customer engagement or grow your email list.
Related: Venture Capital VS Crowdfunding
2. Seek angel investment
Angel investors are accredited, wealthy individuals willing to invest in new business ideas. Sometimes, these individuals come together as a group to select the best candidate to invest in. Before you approach an angel investor or angel network, you should have a pitch and a solid business plan at your fingertips. Apart from providing capital, their know-how will help shape your business’s success.
How do you find an angel investor or angel network? First, you should know what you’re looking for. A good investor understands it will take time before the investment pays off. But again, finding the perfect investor is not about talking to just anybody. This is where a business network comes in. You should get your face out there and talk to lots of people.
Related article: Angel Investors vs Venture Capitalists
3. Apply for a loan
Whether you’re a startup or an established business, there are times when a little cash comes in handy. If you have a solid business plan, banking institutions can provide good financial backing. One way to fund your startup business is through a Small Business Startup Loan. As long as you have good credit, the terms are favorable. For example, these loans can be helpful for businesses that participate in international trade.
The rules will differ from one lender to another. If you don’t qualify for a term loan, you may opt for invoice financing. In some cases, you may be asked to provide information like balance sheets, tax returns, and profit and loss statements.
Before you apply for a loan, you should understand how the financial institution will evaluate your loan. Some will focus on the time your company is in business, others on cash flow or collateral, et cetera. If you bank with a major lender, your loan will be approved faster. While a bank loan is not always guaranteed, it can be a stepping stone to your success.
4. Seek venture capital
Venture capital is a form of financing where investors focus on businesses that have the potential to grow. It comes from venture capital firms such as Peak, banks, well-off investors, and other financial institutions.
This has become a common strategy to raise capital for businesses with no operating history. However, venture capital does not always come in a monetary form. It can be in the form of managerial or technical expertise. The mentorship a venture capital firm brings to the table can help you run your business more effectively.
Related: what is pre-seed funding, what is seed funding
5. Raise capital from family and friends
Perhaps this is the easiest way to kick-start your business. When friends and family members offer finances, they provide favorable terms and flexible payment schedules. Unlike typical investors who delay the process for a better deal, your friends will offer finances in a short period. In addition to that, you don’t have to secure a loan. This is a particularly attractive benefit because you retain your property should your business fail.
In the early stages of a business lifecycle, your family and friends won’t mind if you miss a payment due to rigid repayment structures. It’s often an easier way of growing your business to expand or fulfill a large order.
6. Bootstrap your business
It’s the wish of every business owner to have 100% ownership of a business – this can be accomplished with bootstrapping. But without the right connections and network, it can be a tough experience to raise a large amount of money. You don’t have to take that route.
Bootstrapping is growing your business on limited finances without any external financing. To increase your chances of success, you should ensure there’s low cash flow burning (burn rate). Because there are no debt repayment obligations, it means more flexibility.
While there’s a sense of fulfillment that comes with starting your business from scratch, you should be careful about the undertaking you choose. Starting a world-class restaurant can sound like a great idea, but do you have the capital to sustain it? Maybe you can start with a food truck until you have enough capital to run a bigger business.
When bootstrapping, you need a business that will generate immediate returns. Try to avoid monthly rental expenses and keep your costs to a minimum.
To succeed in bootstrapping your business, you should surround yourself with successful people. In time, you’ll build a strong network. How about connecting with people who are playing at another level? When you put your money into the business and succeed, it’s just a matter of time before you see investors knocking at your door.
Related: Venture Capital Vs Bootstrapping and startup valuation types
Wrap up
Capital is a basic ingredient for a business to thrive. While the above options will help grow your startup, you must get your material information in order. If you’re in a competitive market, you can interchange your funding sources. It’s time you employ the above tactics to kick-start your business.