Coming up with a great business idea is exciting. Still, you might need an office, equipment, a prototype, or other essentials. In which case, you’re going to need funding. Luckily, there are plenty of ways to finance your new company, like with crowdfunding or angel investors.
In this post, we’ll discuss five ways to fund your startup. Let’s get started!
1. Crowdfunding
Crowdfunding enables you to raise money for your startup through multiple funders. It’s one of the simplest options because it typically doesn’t require giving away equity or partial ownership.
To get started, you’ll need to create a crowdfunding campaign. Most crowdfunding sites will charge you a fee to list your campaign. Then, on the page, you can tell people a bit about your business and how much money you need to raise.
One of the most well-known crowdfunding platforms is JustGiving:
You can also find more niche options that might be more suitable for your business. For instance, Patreon is a popular choice for creatives.
Meanwhile SeedInvest is great for tech startups. However, SeedInvest uses an equity crowdfunding model. So in this case, you would exchange partial ownership of your company in order to score funding.
Once your crowdfunding page is set up on your preferred platform, you can promote your campaign on social media to attract potential funders. To encourage donations, it’s best to share a powerful story. You might also offer an incentive to motivate donors, such as a free trial or free products.
Crowdfunding is also a great way to finance your startup because it can help you build a community around your company. Through meaningful interactions, you can establish a strong customer base before your product even launches.
2. Angel Investors
Angel investors are wealthy individuals who invest in early projects in exchange for a stake in the company. Usually, investors will obtain a 10-25% share of the business. It’s become popular in recent years thanks to examples like PayPal, Uber, and Facebook.
However, getting funding from angel investors is very competitive, so it’s important to make your business idea stand out. It’s best to be prepared and show that you’ve planned ahead. For instance, you might conduct market research and create a thorough business plan.
What’s more, investors are more likely to invest in a field that they’re familiar with. Therefore, it’s a good idea to target investors within your sector. You can use LinkedIn to research potential partners.
Another way to make contact with investors is through professionals or entrepreneurs. If you don’t have any useful contacts yet, you can use Wellfound to find opportunities:
One of the best parts about angel investing is that you can also receive useful advice and guidance from your investors. Additionally, you can often gain credibility by association, which you can leverage to make contacts with potential employees and customers.
3. Venture Capital
Venture Capital (VC) firms pair wealthy investors with high growth opportunities. Unlike angel investing, venture capitalists are employed by a company and invest other people’s money into the business.
Furthermore, with this strategy, you won’t just get access to funding. Most venture capitalists also provide strategic assistance and introduce you to potential partners and customers:
While angel investors might be swayed by your ambition and passion, venture capitalists usually need a lot more convincing. For that reason, getting backed by a VC can be a time-consuming process. Plus, you’ll likely need to level up with some solid pitching skills.
Typically, most venture capitalists want to know that your idea has some traction. For example, you might prove yourself with a prototype or evidence of early customer adoption.
To increase your chances of success, it’s best to opt for a warm introduction, rather than joining the pile of unsolicited emails. If possible, try to make contact in person through a fellow entrepreneur or other professional.
4. Government and Business Loans
You can also finance your startup with loans. Since new businesses are a large source of economic growth, some governments offer convenient loans and grants to help you get started.
The downside of this method is that these loans often need repaying, and they can have high interest rates. Additionally, it can be a demanding application process since they’re usually very competitive.
However, there are plenty of advantages to government loans. For example, the SBA 7(a) Loan Program enables you to secure a loan of up to $5 million to expand your business, acquire commercial real estate, or purchase equipment:
Aside from government loans, you can also secure business loans to finance your startup. Typically, you’ll give away equity in exchange for the funding, and the loan needs to be repaid with interest. The bright side of business loans though is that equity is gained back once the loan is paid off.
Your lenders may look at your time in the business, your current revenue, and your credit score in order to make a decision on your application. You may also need to pledge collateral or provide a personal guarantee.
Fortunately, there are tons of different options, so you’re likely to find one that works for you. For instance, you might opt for a working capital loan which is a good short-term option. On the other hand, small business loans might be preferable since they tend to have low interest rates.
5. Accelerators
Accelerators are one of the fastest ways to finance your startup. They are also a great option for those in the tech industry.
With this method, you can supercharge the early stages of your business by joining a short-term program that usually lasts 2 to 4 months. In exchange for equity, you’ll receive funding for your project.
The application process can be grueling but it’s one of the fastest ways to get your business off the ground. To find accelerators, your best bet is to start looking locally. Additionally, you may want to stick with programs that are focused on your specific niche or industry.
One of the most elite accelerator examples is TechStars:
TechStars only accepts 1-3% of applicants, so it’s fiercely competitive. This level of competition may seem extreme, but this is because accelerators typically offer more than just funding.
Unlike other financing options, accelerator programs may also offer mentorship, office space, or a list of contacts. It’s important to note that accelerators are different from incubators. Incubator programs are more long term, often lasting years and culminating in a big presentation or launch day.
Conclusion
Once you’ve come up with a great business idea, you’ll need to start thinking about funding. Fortunately, there are plenty of options for startups. For instance, you can launch a crowdfunding campaign, work with an angel investor, or apply for accelerator programs.
Do you have any questions about how to finance your startup? Let us know in the comments section below!
Photo by S O C I A L . C U T