by Veronica Steel • 2020-01-22
It's a long road to success, but with the right idea and great allies, you'll get there. Considering carefully which of funding options will help keep your startup afloat.
Are you onto a huge, billion-dollar idea? Kudos! Now you need to find office space, assemble a tech team, build a website, and scrape a few bucks to get all of that going.
You may have an idea for a unique, swanky cafe or a cool, problem-solving app, but ideas need substance to grow. That substance is cash, lots of it.
That doesn't mean entrepreneurship is reserved only for affluent founders and investors. Here are five viable funding options that will help you rocket-launch your startup.
Most business founders start by paying for everything out of their own pockets. This includes home equity lines, credit cards, saving accounts. In a lot of cases, it can be the best approach.
Some business founders avoid raising or borrowing money and they bootstrap until their startup is profitable and growing well. Since there are no monthly payments and extensive loans to bog you down, it has its perks. That especially goes if your business runs into snags along the way.
But, there are better funding options if you want to scale your company fast. What happens when you need more money but you've spent it all? Outside sources of funding are better solutions for such situations. Whether bootstrapping is right for your startup or not, depends on the type of business you have.
It shows future investors how serious you are. You also get to stay in control of your startup during its defining stages. You'll be able to protect your baseline better because you won't have to give up equity. However, even though it's a romantic idea in line with the American Dream, you need to wage the pros and cons of bootstrapping your startup because it can be a huge blow to your personal finances.
You'll likely need to turn to venture capitalists (VC) if you need some serious money. VCs usually invest at least a million dollars. However, plenty of venture capital firms prefer to invest in at later funding stage. Even though they are willing to give some serious funds, VCs require an airtight and in-depth business plan.
Venture capitalist work for clients. They invest money in a couple of different companies. Ideally, one, or all of them, deliver a great ROI for their clients. In other words: they fund all sorts of companies, across various industries. You'll have to make yours stand out if you want their attention.
Do note that venture capitalists usually want a threefold to tenfold return on their investment within the next five to seven years. So, if you go with this funding option, you should think of an exit strategy.
Usually, you can reach venture capitalists through other investors or business owners. You need to start leveraging your network if you want to solicit VC money. If that's not an option, you can try the National Venture Capital Association's site.
If you want a basic idea of angel investment, you can check out shows like Shark Tank or Dragon's Den. This is one of the best funding options if you have a tech startup. An established business professional with a high net worth that believes you have a promising business - that's your Angel.
Angels invest anywhere from $20,000 to a couple of millions. Again, if you want to find your angel, you need to scrutinize your network and see who can help you reach one. The Angel Capital Association is a good place to start. The platform has helped over a thousand entrepreneurs secure funds for their startups.
One of the ways you can fund your startup is by earning funds through trading and investing in other ventures. It's not exactly bootstrapping since it's a way of making your money work for you, but it is one of the less common, alternative funding options.
However, you need to have a good understanding of market psychology if you want to be successful with stock trading or investing. One has to have a good understanding of risk management to ensure success.
IndieGoGo, Kickstarter, and other crowd-funding platforms can be a viable option for raising money. It may seem like an easier alternative, but crowd-funding campaigns require a lot of effort. For instance, you have to offer certain perks to donors.
If you have a sound business plan and can prove you're making money and gaining traction, you can rely on banks like Wells Fargo or Bank of America to secure traditional bank loans. Both of these banks have stated that they are committed to supporting small businesses.
You must have a good credit score. If your business is doing well at the moment, it may be a good idea to take out a business credit card, use it, and pay dues on time, even if you can manage without it. If a time comes when you need emergency credit, you'll be on good terms with the lenders.
Procuring funds can be hard, but also rewarding. It's a long road to success, but with the right idea and great allies, you'll get there. Considering carefully which of funding options will help keep your startup afloat.