Regardless of how great a business idea you may have, it won’t go anywhere without sufficient funding and support from the right sources. Most people borrow money from friends and family, while others take out a loan from a bank or other financial institutions. But there are other options that startup founders can contact to support and fund their project.
Whatever your reason is — giving your company a strong start or deciding to expand your startup internationally — here are seven (7) key funding options for your company.
Crowdfunding is one of the most common ways startup entrepreneurs can raise money for their businesses. It can also help them promote their products and services in a more personal way.
To start a crowdfunding campaign is simple. Just choose a crowdfunding site like Kickstarter or Patreon and start creating your profile. You want people to get to know your company, products, and services; therefore, your story has to be clear and distinct. If your narrative is good enough, you’ll find that a lot of people are willing to help you get started in your business.
With most crowdfunding websites, it’s typical for patrons to get a reward after making a donation. This can be anything from a gift certificate or discount code for your services. It could also be some form of share or equity in your business.
One common startup problem is not having enough people recognize your service or product. Luckily, a crowdfunding campaign can also work as a community-building activity for your business, as you’re already engaging with people who are most likely your target market.
Note: Most crowdfunding websites do charge a small processing fee or ask for a percentage of your earnings.
Here are a couple more crowdfunding websites you can check out:
2. Venture capital
Just as the name suggests, venture capitalists provide startups with the capital they need to begin business operations. Besides that, venture capitalists can also introduce new businesses to partners, investors, customers, and other shareholders.
Venture capitalists are often interested in investing in products or services that have the potential to go big. This is why it’s not as simple to get a deal from a venture capitalist as it is to get crowdfunding.
If you’re aiming to get support from a venture capitalist, make sure that your business has already gained some traction in your market. Furthermore, if you’re selling a product, having a working prototype on hand can help improve your chances of getting the funding you want.
Keep in mind that venture capitalists aren’t for everybody. The majority of VCs are more focused on businesses that are technology-driven, so if your company doesn’t fall under that category, this funding type might not be the best for you.
3. Angel investors
Angel investors or “angels” are often retired company executives or wealthy individuals who invest in promising startup companies. In exchange for their funding, angels are often given shares, equity, or a seat on the board of directors of said company.
These investors typically invest during the earlier stages of a startup shell out as much as $25,000 to $100,000.
It’s not easy to meet angel investors, as they normally keep to themselves. If you do wish to contact an angel investor, you’ll have to do it through a specialized association.
Here are some ways you can find angel investors:
- Through other entrepreneurs
- Through lawyers and accountants
- Crowdfunding sites like Indiegogo and Kickstarter
- Venture capitalists and investment bankers
Note: Angel investors are more likely to support your startup if they’re familiar with your industry. Thus, it’s a good rule of thumb to search for an investor from the same industry as yours.
4. Government grants
A number of government agencies offer grants for startup companies to use for their business. Depending on your location, you may find these grants and subsidies posted on government agency pages. If you’re from the United States, you can find a wide variety of grants at Grants.gov.
Note: You may need to meet certain qualifications to be eligible to receive a grant, but once that is settled, you may proceed to start your business just as you planned.
As anyone would expect, accepting free money from the government is no breezy walk in the park. It will take a fair amount of paperwork and time before you finally get approved. So, before applying for a program, make sure that you have all the necessary requirements ahead of time to avoid the back and forth of the application.
5. Personal investment
It goes without saying that when starting a business, you’re your first and only investor during the early stages of your company’s development. Startup business owners can do this either with their own cash or using some of their assets as collateral on their business. Keep in mind that personal investments may require a certain level of tax planning in the process to avoid incurring exorbitant costs.
When you invest in your business, it shows other investors and funding agencies that you’re confident about your business’ capabilities and that you’re in it for the long haul.
6. Small business credit cards
You might not be aware of this, by there are a number of credit card companies that cater specifically to startup businesses. Many of them even come with special perks such as cashback rewards, airline mileage, and many others.
One downside to this type of arrangement is that your business credit card will often be tied to your personal credit score and history. In other words, any late payments or missed deadlines on your business credit card will automatically affect your personal credit score. Interests for unpaid credit cards can range anywhere from 5% to 19.99%.
However, if you’re careful with how you use your credit card and are diligent with making payments, you shouldn’t find any problem with owning a business credit card.
7. Business incubators
As their name suggests, business incubators are entities that assist startup businesses to innovate and grow. They typically provide startups companies with mentorship opportunities, shared workspaces, even access to their list of startup investors. Business incubators give startup businesses the space to grow their operations at a lower cost.
To work with a business incubator, you’ll have to go through an entire application process wherein the business incubator will evaluate your eligibility.
Business incubation typically lasts around one to two years; however, a business incubator’s schedule is often flexible and can be adjusted around the needs of the startup company.
Note: Business incubators are quite selective when it comes to the businesses they invest in. Usually, these are businesses involved in biotechnology, information technology, multimedia, or industrial technology.
There is a wide variety of options for startup entrepreneurs to find funding for their business idea. The key is to create a compelling story that will help investors connect with their brand and message. Before attempting to even look for investors, you should have a solid understanding of what you want your brand to represent. Furthermore, you must be 100% sure that the product or service you’re about to release is something that can change or improve your target market’s lives.