As a startup founder, there will come a time when you will need to raise funds. There are many ways to raise funds to help scale and sustain your venture. Let us have a look at some of the most important ways startups can look for funding –
Also known as self-funding and is perfect for the early stages when you are just getting started and have enough money to cover the current needs – that is developing a business plan and creating a proof concept. These two elements eventually become your main assets for acquiring future investments and the expenses are comparably small to cover from your own pocket.
The opportunities and capabilities of the Internet are unlimited. Crowdfunding has become a popular way of raising money as it doesn’t need much to get going. The opposite of a traditional business route, here people “pre-order” your product before you even started building it. You then use the money raised for the actual product development.
- Incubators and accelerators
Accelerators and incubators can be great options for early-stage startups. Run by VCs, government firms, and universities, they can be found in most big cities, helping hundreds of small businesses every year. They aim at supporting a startup in its early stages through infrastructure, networking, marketing, and financial assistance.
- Angel investors
Angel investors are individuals or groups of people that provide funds to promising startups in the early stages. Angel Investors are looking out for potential IT unicorns like Google and Alibaba and can mentor your business for good equity to compensate for the risk (usually up to 30%).
- Venture capital firms
This is where founders can make big bets. Venture capitalists are professionally managed funds that invest in startups with huge potential and scalability. Their expertise and mentorship can lift growing small businesses that are already generating profits. However, VC investors usually plan to return their money within 3-5 years. So they would not be interested in startups that need more time to get to the market.
- Bank loans
A bank loan is the most obvious funding option. Banks provide different kinds of loans to give entrepreneurs complete control over their businesses and help finance short-term operations. At that, bank loans require a lot of documentation, track record, and strict standards in addition to a detailed business plan. When considering this option, check the interest rates and collateral you can give in return.
- Government programs
If your business involves any research, scientific, or environmental initiatives, government programs can cover some of your expenses. There are also good chances of winning fundraising contests for startups in other fields. Not only does it encourage more entrepreneurs to set up their own businesses, but also provides media coverage for the contest winners, fueling publicity.
Now that you know whom to contact at each startup funding stage, it’s time to think about ways to convince investors to give you money. We shall talk about this crucial step in the coming articles.