You might have a great business idea. However, it is essential for the success of your company that you obtain sufficient funds to launch your business and spur its growth. With that in mind, startup founders need to appreciate the difficulty of raising startup funding and prepare accordingly. Moreover, you need to understand that raising funding takes considerably longer than you might anticipate.
Herein, we will explore the 5 main options for startup funding.
1. Angel Financing
Angel investors are individuals who fund startup at an early stage, better known as the startup stage in exchange for equity ownership in the company. Angel investing in startups has grown tremendously in the last decade or two. Many tech giant success stories in Silicon Valley like WhatsApp, Uber, and Facebook have encouraged angel investors to make early investments in companies they believe in with the hopes of getting outsized returns.
Generally speaking, an angel investment can range from $25,000 to $100,000 for every company. However, the investment can get higher.
The best way to entice an angel investor to invest in your company is to get a solid introduction to the investor from their friend or colleague. To this end, use LinkedIn to explore the connections you might already have. Keep in mind that Angel investors are more likely to invest in companies they are already familiar with. It pays to use the connections you already have in your sector first.
2. Crowdfunding
Crowdfunding is a funding practice that raises money from many funders, typically via a popular crowdfunding platform.
As a method of raising funds, crowdfunding allows entrepreneurs to not only raise capital but also to promote their products and or services. Setting up a crowdfunding campaign is relatively easy and straightforward. Typically, you have to set up a profile on one of the many crowdfunding platforms. In the profile, you describe your company, its business, and establish the amount of money you seek to raise.
Platform users interested in your business and or product can donate to your crowdfund in exchange for a reward. The reward can be a donation-based discount, a free product or service, or other perks. Alternatively, you may offer your backers a profit share or equity in your business.
3. Small Business Credit Cards
There are credit card issuers whose primary focus is small businesses. Many of the small business credit cards have exclusive rewards, including, airline mileage, cashback rewards, and other similar perks.
You should note, however, that some issuers require the owners of the card to tie the small business credit card to their personal credit score and history as well as a guarantee from the owner. This means that any default or late payment will affect your own credit rating.
Furthermore, you should note that interest on the credit card balance can be high. It ranges from 5% to as much as 19.9%. You can take advantage of the no or low-interest introductory charges that some card issuers offer for the first few months.
You can also apply for a credit card from one of the card issuers who focus on small businesses and do not have a personal guarantee as a requirement. Having and using such a card will not impact your credit history and score.
4. Venture Capital
Venture capital (VC) firms are also a good source for startup financing. Aside from providing capital, the firms provide strategic assistance, introduction to potential partners, customers, and employees and much more.
However, venture capital financing is not easy to obtain. VCs typically want to invest in startups that pursue significant opportunities with high growth potential. They also prioritise investing in companies with proven results of some kind. The results may be working on a product prototype, having early customers adopter, or other metrics.
Do your research and educate yourself on whether your goals and your company’s stage of development aligns with a particular VC.
5. Small Business Loans
You can also fund your startup with a small business loan from one of the many traditional and alternative lenders. These types of loans are perfect for funding research and development, funding business growth, funding expansion into other territorial markets, hiring new employees, improving your sales and marketing, and much more.
The options for business loans vary considerably. As such, the best small business loan depends on your business needs, the specific terms that come with the loan, and the length of the loans.
According to small business lenders Max Funding, “it is important to note that many lenders are willing to fund small businesses, much more than ever before”. They suggest “one should take time to analyse the terms from every lender and compare them with the conditions from other lenders”.
