How to get funded for a new startup?
Have a business plan in your head but don’t have any idea about how to get your early-stage startup funded? Well, worry not! We are here to guide you toward getting an investment for your new venture.
Considering you have a great business idea in mind, you must be juggling between several ways through which you can procure funding. As funding is an important prerequisite for getting your new business off the ground, the source of the investment matters – a lot.
At one point in time, you might have a few interested investors but then the question arises, “Are those investors authentic?”, or “Is it safe to get those investors as my funders (keeping in mind whether they would be a good long-term fit for the startup’s values)?”
Well, all these questions will be answered in this blog post today. We’ll be guiding you about how to carefully plan fundraising for your startup business while keeping the right approach and references in mind.
Curious to know more? We’ll cover everything about startup funding in Europe, The United States, and anywhere else in the world.
Top 7 ways to get funded for your startup business
1. Taking credit from dear ones
The first source of investment that might come to your mind when you need financial favors for your business are your near and dear ones. Why? Because they are the ones who are often best-positioned to lend you an ear to understand your ideas and, at the same time, believe in the vision for your venture.
Therefore, if you need a small amount of funding for your startup business, you could think of approaching your family members, relatives, or even friends for credit.
Borrowing money from one’s dear ones is a relatively easy way of getting started with your business. This is because, at times, it may become hard (especially for first-time founders) to figure out how to engage with full-time investors the right way. As a result, you might find yourself devoting more time and headspace to the fundraising process than you spend on actually developing your product, generating leads, and/or closing sales. In such situations, raising a friends-and-family round (as opposed to, say, a seed round) could be the right way to go.
2. Opt for small loans
Several banks have various schemes for offering loans to small-scale businesses or/and startup businesses. However, these loans tend to involve a fair bit of paperwork and verifications in the process. This is because banks have to think several times and over many factors before providing loans to small companies.
You might also wish to do your research and verify the best banks from which to borrow the loan; this helps founders be safe and prepared for all outcomes. Keep in mind that unsecured bank loans need to be repaid (typically with a predetermined percentage of interest) while unsecured loans, if not repaid, lead to the borrower losing ownership of their agreed-upon collateral. Therefore, small loans from banks should be opted for only when there is a reasonable certainty that you’ll be able to make timely repayments.
If you think that you are not going to be able to get credit for your startup business, worry not. In such circumstances, you can think of launching your operations by bootstrapping.
What is bootstrapping?
Bootstrapping refers to the process by which founders tap into their savings and other such personal sources of money to get their business off the ground. There is very little room to recover these savings should the business not take off and yield profits. But if your risk appetite and tolerance are up to it, then you could go ahead with bootstrapping. Oftentimes, this is the only funding route available to startups in their earliest stages.
4. Get help from an Incubator or an Accelerator
Enrolling in an incubator program or an accelerator program is an excellent idea for early-stage startups, especially for first-time founders. While the common perception (and, to some degree, representation) of incubators and accelerators is that they cater to only college students who’re trying to set up a business, the truth is that most of these programs have no issues with accepting adult founders.
These programs offer a great ecosystem for founders to get a boost in whatever they are willing to do or pursue. This ecosystem would include some financial help, great partnerships and connections, a launchpad for innovative ideas, and a helping hand for businesses to scale and expand the right way.
5. Choose Crowdfunding if active on social media
If you have an active social media presence (preferably with a sizable audience of friends and followers), then crowdfunding could be another incredible idea for raising funds. This is because when you go for crowdfunding, you tap into whatever following you have on social media platforms to raise funds for your business; this usually translates to procuring small amounts of money from multiple people who are guaranteed early access to the end product that the startup develops.
Successful crowdfunding campaigns are led by founders who know beforehand that they can generate sufficient buzz and interest online to attract the kind of funds that they are aiming for. Therefore, this option is best-suited to founders who are in a position to leverage social media to generate the appropriate demand (and, by extension, the willingness to fund/donate) for the products/services that they are developing.
6. Utilize the benefits of the category to which you belong
There are specific grants given to the people of specific categories; this includes minorities, women, veterans, etc. If you feel that you fit in any of these categories, do not hesitate to speak up for your grant. This surely would help to fuel up your start-up business. There are also some interesting benefits (a grant being just one of them) offered to members of local chambers of commerce – these chambers are based on either location or niche. Therefore, you should consider joining both kinds of local chambers: those that are near you and those that offer access to an entire community of professionals, startups, and other business entities in your niche.
7. Give Angel Investment a shot
Angel investors are individuals (and sometimes groups) with a surplus amount of money that is set aside for investing in fast-growing early-stage startups. While angels mostly invest individually, they also operate through well-organized networks where they invest in startups collectively.
Angel investment is often considered to be the best and most effective way of getting funds raised for the new business. Perhaps this is because many of today’s tech titans owe their successes to angels that had faith in them early on: these companies include the likes of Facebook, Google, Apple, and other giants. Most angel investors have a good understanding of startups – which is why your pitch to them should be solid and grounded in meaningful substance. This does not mean that you necessarily need to have perfected product-market-fit to qualify for an angel investment; angels will often be willing to overlook the absence of PMF in a startup if they observe some degree of meaningful business potential in the venture. As for returns, the equity that they would typically expect in exchange for investing in your startup could be anywhere between 20% to 50%.
As mentioned earlier, some kind of funding is required at the initial stage of most businesses. The better (and more appropriate) the source of the funding is, the more easily you’ll be able to get the business up and running, i.e., the more smoothly your operations will function.
We hope that everything that we discussed above gave you a concrete idea of how to raise funds for your startup. Good luck!