According to various reports, many businesses fail in their first year due to various reasons like lack of experience and insufficient funds. You can gain experience with time but no business can survive for a long period without cash. So, as a conscious founder of a start-up, you must get to know the different ways for you to raise sufficient funds for your starting business – an essential part of ending up as a successful business venture.
Here are the 10 most common fundraising options to help you with choosing the best one to secure the future of your startup.
It is one of the most effective ways of raising funds for a startup. When you are starting a business for the first time then it can be difficult for you to raise funds for it unless you have some plans and potential to make it successful. Before asking others to fund your business you must invest your savings. It is one of the easiest ways to raise funds at a negligible cost for a startup as no complications and formalities will be involved in it. Another advantage of self-funding your business is your attachment to it. Other investors will also consider it a positive point while financing your business.
2. Funding From Family and Friends
You can also ask your friends and family to finance your startup business as they are linked with you and both the borrower and the particular case – lender are familiar with each other. You can raise funds from your friends and family in different ways like as a gift, loan, or equity.
Gifts from your closest friends and family members can be the best way of funding your starting business as you are not expected to repay them. While accepting loans from your family and friends you should plan to repay them with interest. People investing in the equity of your business will eventually become your partners and will stay connected to your business.
It is one of the latest ways to raise funds for a startup. This method of fundraising for startups is gaining popularity these days as many people can finance your business simultaneously in various ways like pre-order funds, loans, investments, and contributions, etc.
You can find a crowdfunding platform and put on the description along with the goals of your business in detail on it. If this idea strikes the investors then they can fund it by offering donations or with a promise of buying your products. Another benefit of crowdfunding a startup is that it helps in marketing your business and can make it interesting for other investors also.
4. Business Accelerators
Funding a new business through business accelerators can also be a good option. Many business accelerators help several startups in major cities these days. Business accelerators can provide training, tools, shelter, and network to support the startup so that it can take a big leap and start running. The owner of the startup must be committed to making his business successful as business accelerators can help them for a limited time.
Moreover, they must be eager to develop good relationships with the investors and mentors supporting the acceleration program.
5. Small Business Grants
Federal and state governments offer various types of grants for running businesses as well as startups to help them in becoming successful in today’s competitive global economy. Most of the grants offered by the federal government in the USA are for the businesses that are already running. You cannot get these grants unless you have started your startup. Your business must be contributing and innovative to be eligible for a government grant. It may take some time to get grants from the governments as they are granted with a long term goal.
6. Angel Investors
Many individuals want to invest their surplus money in startups against some interest. Such investors are known as angel investors. Some angel investors also work in groups to secure their investments. Before investing in any startup they monitor their proposals collectively. Along with capital they can also offer advice or training for your startup. Angel investors are very important at an early stage for a growing company. Many major companies like Yahoo, Alibaba, and even Google have asked angel investors to help them.
7. Venture Capital
Some of the professionals manage huge funds to invest in various companies. These funds are known as Venture Capital as they invest against the equity of the business and leave it as the business is acquired by another business or issues an IPO. The business seeking venture capital can get mentorship and expertise as the fund providers evaluate the scalability and sustainability of the business before investing in it. But Venture Capital is a good option for raising funds for the businesses that are already making money instead of startups. Moreover, venture capital is a short term funding option as they usually take their investments out in 3-5 years.
8. Win Contests
You can increase the chances of raising funds by participating in several contests conducted these days to encourage startups with unique ideas. You can participate in such contests even if you have a business plan only or produce some products. You can also provide coverage from the media to your startup by winning such competitions. To improve your chances to win such contests you must have a remarkable and complete business project. It can also encourage investors to invest in your project.
9. Bank Loans
You can ask your bank to fund your startup. Banks usually offer two types of business loans – loans for working capital and for funding the business. A business requires working capital loans to complete the cycle of operations to generate revenue and this loan is granted by banks against stocks. You will have to share the plan and valuation of your business along with the report of your project with your bank to get funding for your business.
10. Loans from NBFCs or Microfinance Providers
Though banks are a good source to raise funds for a startup many times you may not qualify for a bank loan. In such a condition approaching microfinance providers or NBFCs can be one of the good options to choose from. People who are not eligible for getting business loans from banks usually opt for financial services offered by micro-financiers or non-banking financial companies.
The way they usually finance businesses is by accepting the credit score of the borrower which is not accepted by the traditional banks.
Thus, you can follow the tips discussed in this write-up for fundraising for startups.