Feasible options for startup funding

 

Lack of funds is one of the common reasons that result in the failure of about 90% of new enterprises in their initial year. It doesn't matter how great your business idea is, if you are unable to obtain sufficient funding your business won't see growth.

If you're thinking of starting a startup and are asking yourselves, "How will I finance my startup?" we have listed down the 7 best funding options for you.

 

1.  Angel Financing

Angel investors or business angels are high net worth individuals who invest in start-up or early-stage companies in interest for an equity ownership interest and hope for a significant return on their investment. They usually consist of wealthy, experienced businessmen/women who put their time and money into your business. Companies like Uber, WhatsApp, and Facebook have spurred angel investors to make multiple bets.

The average angel investment is about $25,000 to $100,000 per company but can go higher.

  

What do angel investors care about? 

    ●      The quality, passion, sincerity, and dedication of the founders.  

    ●      Intellectual property, interesting technology, and out-of-the-box ideas.  

    ●      An acutely thought out business plan and any early proof of obtaining traction toward the              plan.

    ●      The market opportunity and the potential to achieve growth.

 

How to find angel investors? 

    ●      Other entrepreneurs  

    ●      Angel investor forums  

    ●      Investment bankers and venture capitalists  

    ●      Crowdfunding sites  

    ●      LinkedIn 

 

Advantages of getting an angel investor

●   Valuable advice and counsel from experienced business people who have a thorough knowledge of the field.

 

●      Flexible business agreements.

 

●  Contacts to venture capitalists, strategic partners, potential customers, potential employees, lawyers, banks, investment bankers, and accountants.

 

●      Knowledge of marketplace and strategies of other companies in a similar business field.

 

2.  Venture capitals

Startups looking for financing often turn towards venture capital firms. It is a kind of early-stage financing for companies with high-growth goals and significant requirements. These firms provide strategic assistance, introduction to potential clients, partners, employees, and much more. However, venture capital does not apply to all entrepreneurs and is usually harder to obtain. They commonly focus their investment efforts using one or more of the following criteria: 

 

●   Specific industry sectors (communication, information technology, software, digital media,          SaaS, software, etc.) 

 

●      Stage of the company (Early-stage companies or later-stage companies that have achieved        significant revenues and traction) 

 

●      Geography (E.g., Wyoming, Delaware, San Francisco, etc.)

 

Startup companies should understand that the venture process could be time-consuming.

Advantages

●      Mentorship and expert counsel are provided by venture capitalists to help develop a business strategy for your startup. 

 

●      Provides companies credibility and better opportunities to a broad network of potential investors and business partners.

 

3.  Business incubators 

Business incubators or accelerators focus on the high-tech sector by helping different stages of development among startups, and the local economic incubators are responsible for shares services, hosting, and job creation. Business incubators are usually used and popular among businesses in the early stage. Incubators work as a parent to a child that nurtures a business providing shelter tools, training, and network for a business. The incubation process usually a couple of months and requires commitment and time from the business founders. Incubators will connect potential businesses and other companies to share their offices, including administrative, logistical, and technical resources. Businesses with this kind of assistance often work with state-of-the-art sectors like information technology, multimedia, and biotechnology.

In the U.S, companies like Airbnb and Dropbox started with an accelerator.

Advantages 

• Provide an environment that supports and inspires investors.  

•  They come with quality advice, good training, mentoring, and counsel.  

•  You can save on rent since an incubator generally offers a co-working space at a low cost., you can     take advantage of shared utilities as well. Incubators will allow you to save on operating expenses    to formulate growth.    

•   Easy access to many resources necessary for a startup.  

• With incubators, you can find more options for funding since they introduce you to venture  capitalists who may want to fund your start-up.  

• You can network with other start-ups when you share your office space with a group of fello investors. You'll be in the best location partner with other companies and meld minds.  

• They focus on start-ups.

• Incubators provide a structured work environment that makes you focus more. This will enable you  to establish good work habits and get your business started.

  

4.  Crowdfunding

Crowd funding refers to the type of funding where funds are raised through multiple funders or from a large number of people via the internet or crowd funding sites. Crowd funding enables companies to acquire start-up funds while promoting their products and services. Start-ups can set up a crowd funding campaign easily. Set up a profile on a crowd funding site, describe your company and its business, and mention the amount of money that you aim to raise. People who like your business idea and are interested in what you are trying to do can donate to your campaign in exchange for some kind of compensation for their donation(products, services, discount depending on the amount donated, and other perks) or for some kind of profit or equity in your business.

For successful crowd funding, you need to have a compelling story about your services or product and provide meaningful offers in return for the donations. Rewards or offers are not burdened with interest or principal repayments like small business loans. 

 

Advantages

• It serves as a marketing tool by introducing your business's overall mission. It is also a free and easy way to reach the market and potential buyers.  

• There is no risk, unlike business loans where you are charged with a huge sum of interest and your assets are put to risk.

•  Crowd funding also validates your business idea. The amount of money your business idea raises can help understand what the audience or potential buyers think of your business idea. Reaching and exceeding your goal also gives you an understanding of the demand in the market for your product and services. 

•  Your campaign could also go viral and reach high net worth investors or investment bankers.

 

Here are some of the most popular crowd funding sites:

●      GoFundMe

●      Kickstarter

●      Indiegogo

●      SeedInvest

●      Crowdcube

●      Fundly

●      Crowdfunder

●      Patreon

●      Crowd Supply

 

5.  Bootstrapping

You can succeed for the first time out in your business start-up b making sure that you have some saved up funds that are easily accessible or funds that can be obtained from friends and family. Bootstrapping is the process of utilizing personal saved-up funds or funds from friends and family. This is one of the unique ways to kickstart your business. The main goal of obtaining friends from friends or family is to help launch a business while seeking other types of funding afterward and is more focused on building relationships.

Advantages

• By bootstrapping, you can continue to own 100% of your business as a solo entrepreneur. With a co-founder or multiple partners, your share of the equity will still be larger than the others if you go through multiple rounds of fundraising. If your idea is to keep it as a lifetime business or make it a multigenerational business, then bootstrapping is the best option. 

• You don't have to waste time finding investment. 

• Bootstrapping forces you to be more creative and innovative since you have a sense of control over your business. Moreover, you are not answerable to investors. 

• Payment terms are flexible.

• Interest-free faster funding.

• The repayment period is longer.

  

6.  Small business credit cards

A lot of credit card issuers cater to the small business markets specifically and come with special benefits too: airline mileage points, cashback rewards, and other perks. You can apply for a small business credit card online or through your bank. The main small business funders include Capital One, Chase, Bank of America, Wells Fargo, and American Express.

There has been a new trend of credit card issuers that focus on the small business market and do not require personal guarantees. In simpler words, the use of the card will not impact your credit score. The credit limits of these cards could also be substantially higher than the usual credit cards while providing valuable rewards.

Although small business credit cards are a good way to fund your business, beware of issuers that require the card to be tied to the owner's personal credit score and credit history along with a guarantee from the owner. In late payments on the business credit card would then affect your personal credit score. Interests on unpaid balances are high and can range from 5% to 19.9%, although some issuers provide a low or no interest introductory charge for the few starting months.

 

Advantages

•  Credit cards will enable you to set individual spending limits for you and your employees to budget your expenses and keep your business spending under control.

• Many issuers do not charge interest for the first few months or charge a very low interest. This is an attractive offer since you don't need to worry about interest rates while starting up your business.

  

7.  Government grants and subsidies

There are a lot of government programs that offer capital for startup businesses. This is one of the excellent ways to source your business. To apply for government grants and subsidies, you are required to submit a plan that can be accepted by the grant committee. It can be tough since there are strong competition and very strict criteria. Your detail needs to provide the following:

●      A detailed description of the project.

●      Information of the project benefits.

●      An entire list of costs and a detailed work plan.

●      Information of relevant experience and qualifications or background of the key managers.

●      Properly filled out application forms.

Reviewers will then review your application based on significance, approach, expertise assessment, need for the grant, and innovation. Once approved, you will be provided with the necessary funds

  

Advantages

●      Since the funds are from the government, they will be substantial in size and will provide you with surplus capital to manage your business startup. 

 

●      It further increases the chances of getting approval for a bank loan when the grant is properly managed.

 

Other options   

 

●      Bank financing: The most common method for small and medium-sized startups. Back up your enterprise with a solid business plan to increases the chances of approval. If you are qualified, the funding is quick and you will be provided with funding options based on your startup's distinct needs. You will also be able to take control of your company.

 

●  Winning contest money: Participating in contests that require entrepreneurs to showcase or pitch their business module against other participants is an amazing way to obtain funds. You will be required to exhibit a comprehensive business plan. Moreover, the media coverage will provide free marketing and publicity.

 

●    Product pre-sale: You can also opt for a product pre-sale before officially launching your products. By doing this, you are building customer confidence in your brand size up the demand before its official launch. This method is used by popular companies like Apple and Samsung by allowing customers to pre-purchase the product before the official release.

 

●      Factoring or invoice financing: With this method, a service provider provides funds when you sell your outstanding accounts receivable (invoices). You repay once the customer settles the bill. This method also provides an easy cash flow required in the early stages of your company.

 

●    Rollover for Business Startups: This allows you to invest your retirement funds from an Individual Retirement Account (IRA) into your business. By doing this you are directly investing in your own business. It comes with no interest, debt payments, income taxes, or early withdrawal penalties.

 

●     Microloans from non-profit funders: This type of loan is structured specifically to cater to the needs of small businesses. This method is recommended for businesses that don't have the credit or sufficient collateral and provide small amounts of seed money to get the business off the ground. They also offer installment-loans, giving business owners predictable monthly payments to plan a budget. These loans are also provided to owners with less than perfect credit scores and can even function as credit builders by helping establish good credit.

To conclude, there are several options to fund a startup, and selecting the best option can be a stressful process. Research and review your financial needs, qualifications, and business needs to find an option best suitable for you and your startup. Compare your options and choose the one that provides the most growth.