A recent survey found that almost 92% of new firms fail during their first year of existence. One of the most prevalent causes is a lack of funds. Money is the lifeblood of any firm. The lengthy and arduous but fascinating path from idea to revenue-generating firm requires a fuel known as cash. That’s why, at practically every stage of their business, entrepreneurs wonder, “How can I fund my start-up?”
Here is a detailed guide that includes 7 start-ups funding possibilities to help you get funds for your company.
Starting a business from scratch
Self-funding, often known as bootstrapping, is a successful method of start-ups financing, particularly when you are just getting started. Without any traction and a plan for possible success, first-time entrepreneurs frequently struggle to obtain investment. You can invest from your personal resources or solicit contributions from family and friends. This will be simple to raise owing to less formalities/compliances, as well as lower raising expenses. In most cases, relatives and friends are willing to negotiate lower lending rate.
Because of the benefits, self-financing or bootstrapping should be regarded as a first funding choice. You are bound to business when you have your own money. Investors eventually regard this to be a favorable point. However, this is only appropriate if the initial need is limited. Some firms require funds from the start, and self-funding may not be an option for them.
Crowdfunding as a Source of Funding
Crowdfunding is a relatively new method of funding a company that has grown in popularity recently. It’s the same as accepting a loan, pre-order, contribution, or investment from several people at the same time.
This is how crowdfunding works: A business owner will post a full description of his company on a crowdfunding site. He will discuss the aims of his firm, plans for profit, how much funds he requires and why, and so on, and then customers may read about the business and donate money if they like the idea. Those who contribute funds will make online pledges with the promise of pre-purchasing the goods or making a contribution. Anyone can offer money to aid a company in which they have a strong belief.
The coolest thing about crowd funding is that it may stimulate interest and so aid in promoting the product in addition to finance. It is also useful if you are unsure whether the product you are developing will be in demand. By placing financing in the hands of ordinary people, this technique has the potential to eliminate professional investors and brokers. If a firm conducts a very successful campaign, it may potentially attract venture capital investment in the future.
Keep in mind that crowdfunding is a competitive area to acquire financing, so unless your firm is completely rock solid and can capture the attention of regular customers with only a description and a few photographs online, you may not find crowdfunding to be beneficial in the end.
Borrow money from a bank.
Banks are typically the first place that entrepreneurs go for capital. The bank offers two types of business financing. The first is a working capital loan, while the second is financing. Working capital loan is the loan necessary to complete one entire cycle of revenue producing operations, and the limit is often determined by hypothecating stocks and debtors. Bank funding would entail the regular process of providing the business plan and valuation data, as well as the project report, on which the loan is granted.
Obtain Capital from Business Incubators and Accelerators
Incubator and Accelerator programs can provide money for early-stage firms. These initiatives, which can be found in nearly every large city, help hundreds of new firms each year.
Despite being used interchangeably, there are just a few key distinctions between the two names. Incubators, like a parent to a kid, nurture the business by providing shelter, resources, training, and a network. Accelerators do similar things, however an incubator supports/assists/nurtures a firm to walk, whereas an accelerator enables it to run/take a great jump. These programs typically last 4-8 months and need a time commitment from the business owners. Using this platform, you will also be able to connect with mentors, investors, and other companies.
Attract Angel Capital for Your Start-up
Angel investors are individuals who have extra money and a strong desire to invest in new businesses. They also collaborate in network groups to assess ideas before investing. They can also provide mentorship or guidance in addition to funding.
Many well-known firms, like Google, Yahoo, and Alibaba, have benefited from the assistance of angel investors. This alternate kind of financing is most common in a company’s early phases of development, with investors anticipating up to 30% ownership. They choose to take more risks in their investments in exchange for bigger rewards. Angel investment has drawbacks as a fundraising source as well. Angel investors make smaller investments than venture capitalists.
Seek Venture Capital for Your Company
Venture capital funds are professionally managed funds that invest in firms with enormous potential. They often invest in a company in exchange for shares and leave when it goes public or is acquired. VCs give knowledge, coaching, and serve as a litmus test for where the organization is heading, evaluating the firm in terms of sustainability and scalability.
A venture capital investment may be ideal for small enterprises that have progressed past the start-up stage and are already producing income. Fast-growing firms with an exit strategy in place, such as Flipkart or Uber, may earn tens of millions of dollars to invest, network, and develop their business swiftly.
However, there are a few drawbacks to using Venture Capitalists as a funding source. When it comes to corporate loyalty, VCs have a short leash and frequently want to repay their investment within a three- to five-year time frame. If your product takes longer than that to reach the market, venture capitalists may be less interested in you. They often choose larger, more stable prospects, as well as firms with a solid team of individuals and high traction. You must also be flexible with your business and occasionally give up a little more power, so this may not be the greatest option if you are not interested in too much mentorship or compromise.
Win Contests to Raise Funds
The increased number of contests has greatly aided in maximizing fund-raising potential. It promotes entrepreneurs who have business ideas to start their own companies. In such competitions, you must either produce a product or develop a business strategy. Winning these tournaments may also result in media attention. Profit Books benefited greatly from becoming regional finalists in Microsoft BizSpark’s.
READ ALSO> 5 Most Common Reasons Your Startup Need Funding
Falana William is a passionate writer who has a keen interest in various topics. With expertise as a certified Google digital marketing expert, Falana William possesses the skills and knowledge to navigate the ever-evolving digital landscape. Combining a love for writing with proficiency in digital marketing, Falana William is equipped to create engaging and effective content that resonates with target audiences.
