Funding is involved in every aspect of your business. Do you want to launch a startup? You’ve launched it and now you want to take it to the next level? You need a money influx to kick start everything, but you lack the capital, which may be a bit intimidating.
Actually, many entrepreneurs have more ideas for startups but lack the money to start it, as they often get turned down for bank loans. However, there are many other creative options available for securing your business the funds it needs. Each of these alternatives has its upsides and downsides, so some of them may not be so attractive to you, so it’s up to you to analyze and choose. These are some of the proven ways of acquiring funds for a startup company.
1. Venture capitalists
Venture capitalists usually fund new startups that are considered to have both high-risk and high-growth potential. Companies that can grow fast and have an exit strategy in place can get millions of dollars that can be used to network, invest, and grow the company frequently. When it comes to company loyalty, venture capitalists usually have a short leash and look to recover their investment in 3-5 years.
A venture capital firm can offer you advice on whether your product’s useful and how to bring it to the market, as well as systems, connections, and mentorship to help in bringing the business to the next level. These firms usually fund businesses that have a potential for a large scale, but you’ll have to give up in equity and lose some of the control over the company.
2. Angel investors
Angel investors are individuals with private wealth who are passionate about funding projects that solve some kind of problem and provide a return on their investment. They usually invest in a startup or early-stage companies in exchange for a 20-25% ROI and have helped many companies, such as Google. The upsides of having angel investors are in their business experience and connections they provide, and the fact that they fund without interest. However, they also take part ownership in your company, are involved even when you don’t seek it, and will take part in making important decisions.
Crowdfunding sites allow individuals and businesses to get small investments from a number of investors, not having to look for a large, single investment. Indiegogo and Kickstarter are crowdfunding websites through which small businesses manage to get a financial boost. These websites have different policies, as some require businesses to state their complete goal if they want to keep the money they raised or have payment-processing fees.
If you decide to crowdfund your startup, you’ll definitely keep your creative control, because there won’t be a need to adhere to investors. You’ll be able to reach your audience right away and get honest feedback about your product, but there’s a chance that it may not work, as well. Nobody can guarantee that you’ll get your funding goal, because people may think that your product is not that interesting to the market.
4. Small business loans
Getting a small business loan is often the first thing entrepreneurs have in mind when thinking about ways of funding their startup. Banks offer different options for these situations, such as microloans for small business ownership. However, you should make an effort to find your way through that kind of lending period. You have to know how every cent of the loan will be spent, and even if you do, banks may perceive you as too risky to them, and won’t grant you a loan.
If this is the case, you can seek a small loan from online lenders such as ALC Commercial (very popular in Australia) that like to sponsor startups and small businesses. A small loan given on clear conditions and a fixed rate is the most painless way of going through a lending process. Also, they won’t be interested in your company and the problems it faces, leaving you with total control over it.
The government sometimes gives grants, but mostly to businesses focused on research or science. Recipients of such grants are required to have a high potential for commercialization and to meet federal goals regarding research and development. These funds are allocated to support important causes (e.g. social needs, medicine, and education), as well as new technologies.
If your business is situated in a niche that the government may want to invest in, you can start at Grants.gov – a directory of more than a thousand federal grant programs. The process won’t cost you any equity, but you’ll probably have to wait some time before receiving a grant.
6. Trade equity/services for help
Give something you have for something you need. This is called bartering your skills, for example, if you agree to support the computer systems for the rest of the office tenants for free office space in return. Also, you can exchange equity in your company for accounting or legal support.
There is a possibility to fund the business yourself, as about 90% of all startups are self-funded or bootstrapped. The advantage is you don’t have to give up any equity, but it may take a bit longer to save enough money. Your family and friends can also be your investors, as they are people who believe in you. They won’t wait for a return on their investments and check whether you have hard assets, revenue, and real customers.