5 Effective Ways Of Funding A Startup

Every new and/or wannabe entrepreneur will tell you about how the wait for starting a business at the right time boils down to the availability of sufficient funds.

You may have a brilliant business idea, but all your plans, even though thought out to perfection, will be of no use if you cannot give them wings. The said wings come from money. Not only can money help your idea metamorphose into reality, it can also lift it off the ground and keep it afloat.

While a solid and unhindered financial inflow is crucial to starting a venture, finding such a source can be a huge challenge.

There are, however, several ways through which you can fund your startup, but not all may be equally helpful. It is, therefore, critical that you study all aspects of your business and its future goals and then evaluate the various types of funding opportunities to give it the right start. Remember, even a single incorrect financial move can land your business in doldrums, so it is worthwhile to weigh your options thoroughly.

Consider Seed Money

According to Wikipedia, seed money (or seed capital or seed funding) is “a form of securities offering in which a private investor invests discretionary income in exchange for an equity stake in the company. The term seed suggests that this is a very early investment, meant to support the business until it can generate cash of its own or until it is ready for further investments. Seed money options include friends and family funding, angel funding, and crowdfunding.”

Procuring seed money can turn out great as through it, you will be able to finance several initial business-related tasks such as market research, and product research and development. Anyone can be the investor(s) – the founder(s), his family members and friends, angel investors, venture capitalists, crowdfunding investors, or government-backed schemes and programs.

Mentioned below is more about the viable financing options you can consider to fund your startup:

1. Crowdfunding

This is one of the more modern ways of generating funds. You make a campaign about your cause and highlight as to why it deserves to be funded, and anyone with who your idea resonates can contribute towards it.

You can make use of popular crowdfunding platforms such as Kickstarter and Indiegogo to present a detailed description of your business idea, its goals, financial strategies, target audience, profit generating tactics, amount of funding needed and how you plan to use it. Interested parties can read this and make online pledges with an assurance of pre-buying your product, making a donation, and earning a reward in return.

Not all crowdfunding campaigns, however, are successful. Several campaigns go unfunded and projects fail to take off as earning funding can get extremely competitive. So unless your business plan is foolproof and convincing enough to engage contributors through just a description, images and videos, the campaign may just tank.

2. Angel Investors

Investopedia defines an angel investor as someone “who provides financial backing for small startups or entrepreneurs. Angel investors are usually found among an entrepreneur’s family and friends. The capital they provide can be a one-time injection of seed money or ongoing support to carry the company through difficult times.”

Angel investors will, typically, invest in your company with a view to make money as you make profits. Many a time, they look forward to ownership of a large (but not majority) portion of your company. Despite this, angel investors continue to be one of the most popular options for procuring funds as borrowing from them allows entrepreneurs to retain control of their company, earn mentorship when required, and make money as the business grows.

3. Venture Capitalists

As per Investopedia, a venture capitalist is an “investor who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to equities markets. Venture capitalists are willing to invest in such companies because they can earn a massive return on their investments if these companies are a success.”

Venture capitalists are different from angel investors, and can provide small businesses with big amounts of money, sound advice, and a standing of their own through their support. The backing of a venture capitalist is a testimony of the promise (for rapid and profitable growth) that the project holds.

However, the entrepreneur may have to give up a large portion for his company to avail the money. This can also mean giving up majority control to them. But, there are different kinds of venture capitalists and not all of them are “vulture capitalists.”

4. Loan

The bank is probably the first place that entrepreneurs may approach to get the funds they need. Several schemes such as microloans, which are dedicated to causes like small business ownership, are available.

However, it can be challenging to find your way through a tough lending period. When taking out a loan from a bank, you will need to explain exactly how you will use the money. Even so, several banks find it extremely risky to lend money to a first-time business owner will likely decide against it. In such cases, it is best to consider small business loan from providers that specialize in this type of financing.

5. Self-Funding, Borrowing  from Friends and Family

The most appealing reasons to self-fund are that you get to be in total control of your business, you call the shots and make every decision. In short, you are free to do as you please. You can use your own savings, borrow money, or obtain cash for gold in order to get the funds.

While this can be extremely liberating, it can also turn into your biggest disadvantage. You may miss out on the valuable guidance of experienced venture capitalists and angel investors. All you might be left with is potentially limited knowledge and blinkered thinking.

You also have the option of borrowing from your family and trusted friends who may be willing to help out with your expenses. This option can, however, put a strain on your relationships if they’re not strong enough to withstand the inevitable financial ups and downs that come with running a business.

Conclusion

Starting your own business can be an exciting phase. It is a well-known fact that patience and good decision making are key to entrepreneurial success. Decisions regarding procuring funds from the right source are going to be one of the most crucial ones. The above pointers should help you sort things out. Ensure to make the correct choice in this respect to give your entrepreneurial dream a potent impetus in the right direction.

Author

Nicola Reynor is a passionate blogger who loves to blog about fashion, beauty, travel, health, fitness, wedding and lifestyle trends. When in leisure time, she prefers to spend time in traveling with friends and family. You can find more about her at Nicola+.