Building a startup from scratch can be a difficult task, if it’s your first time in the business.
Raising money to get started with your startup doesn’t have to be as difficult as you think. Here are 6 classic ways to consider when you are looking for startup funding.
There are some simple steps you can take to getting sufficient funding for your startup. Keep in mind that each of these sources of capital has its own unique advantages and disadvantages, so it’s important that you do your research to see which method is best suited for your needs. I will also friendly remind you upfront that my personal opinion is to try and delay and kind of funding until it is really necessary and vital.
Getting the public to help with your startup funding is a method that is still in its infancy, but is rapidly gaining popularity with many small companies and business owners. Individuals help to start your project by contributing their personal funds. All you do is put your project out there, and people can choose how much they want to contribute towards the project. I will soon write a post about crowdfunding and what websites are the best ones to use. Until than you should know that the two main players in this arena are currently Kickstarter and Indiegogo, both of them are providing solid and reliable platforms to raise funds.
Why yes? Because you trade your product or service for cash and not equity for cash.
Why not? If you are looking for a strategic partner than crowd sourcing your funds is not the right way to go.
When recommended? When you have to build a fan base from day one.
After many entrepreneurs and other business owners have gotten their enterprises up and running, many look back to provide startup capital to other new companies to help get them on their feet. Not only does this help a new business financially, but it also produces great connections that can be used to forge the way forward in the market. I personally think that Angel investors have to bring connections and guidance, money alone won’t take you or your startup to the next level.
Why yes? Because you it is harder to convince a venture capital.
Why not? Most Angel Investors will only bring money to the table and sometimes that isn’t enough. Don’t forget you will lose some equity as well.
When recommended? When your Angel Investor is a former or current startup founder.
Bank loans have always been the most common method of building a startup. Many banks may request that loans be guaranteed by the Small Business Association before granting them to owners. The association itself is a government agency that is willing to guarantee up to 80 percent of the value of the loan for those starting business owners who meet their criteria. Keep in mind that when you go to a bank you will need a very specific and detailed business plan.
Why yes? Sometimes you don’t want to giveaway equity and your product or service is still under development.
Why not? Because of the interest you will be paying the bank.
When recommended? When your bank gives you a great interest rate you can’t refuse.
Many of the big businesses are now being funded by having a co-founder sign up to their enterprises. When looking for a business partner, it’s important that the goals for your business are aligned with theirs. As a co-founder, they will have some amount of control over the direction of the business, so it’s important that your ideas don’t clash with each other. Having a buy-out agreement is highly recommended, should there be a breakdown in the business relationship.
Why yes? Finding a good business partner is priceless and not less important that finding startup funding.
Why not? You might get stuck with an awful business partner.
When recommended? When you know that your co-founder will work as hard as you do.
If you feel that you really need to raise more than money you should be looking at Venture Capitals, usually they will supply you with some connections and service providers that can get you sailing in the right direction from the very start. Sometimes if you come alone you will be rejected because many Venture Capitals expect and prefer to see you with a co-founder before they even think about giving you any funding.
Why yes? Because of the immediate connections and guidance.
Why not? You will have to give up a lot of equity.
When recommended? When you are sure that you really need a firm behind you as a strategic partner.
The Special Option: Family and Friends
Lastly, you can seek funding for building a startup from friends and family members. They want to see you succeed, and some may even want a stake in your business so that they can enjoy some of the returns, should you business end up being successful. However, seeking monetary funding from those closest to you can end up putting a strain on your relationships. Ensure that you’re borrowing money that your friends and family can’t afford to lose. Despite the pitfalls that may come with borrowing money from these sources, many successful businesses started out this way.
Recommended Books For Startup Entrepreneurs
These 3 books are highly recommended by me and the community. If you have to read only one definitely check out “The Lean Startup” by Eric Ries.
Do you have any stories from your startup funding, do have any other ideas how to fund a new business? Please share with us in the comment section bellow.