Once you plan out a great business idea, the next step is to figure out how to raise money for your startup. Even startups with the best ideas can only go so far without the proper funding needed to catapult the business forward.
Capital is the basic foundation of any startup. Without adequate funding to support their business plan, most startups are likely to capitulate only within the first year of their existence. Raising funds for their startup is one of the most difficult challenges fresh entrepreneurs face when trying to establish their footing in the corporate world. So, unless you have a hefty bank account to keep your business running for a lifetime, you will need to look for ways on how to raise funds for your startup.
If you’re wondering how to raise money for a startup, we’ve got you covered. In this article, we take our readers through some of the best ways to secure funding for your startup.
Here are the top twelve ways to raise capital for your business, discussed in detail:
If your startup idea is of a small-scale enterprise, you can potentially fund your business venture. You can invest using your savings or you can ask friends or family to contribute by giving you a loan. Asking for a loan from friends and families will be more convenient because they will be much more flexible when it comes to repayment.
While many people consider funding their own business to be risky, if one truly believes in the success of their idea, there’s nothing to worry about. Investing some of your own money will make future potential investors feel more confident about partnering with you, which helps to grow your business.
But bootstrapping is about more than just investing your savings. It’s also about stretching the resources you have under a tight but appropriate budget.
If you’re thinking of how to raise money for a startup, seeking angel investment might be one of the best sources of finances available. Angel investors are people who provide capital for your startup in exchange for an equity ownership interest. Many of the biggest companies we know of today such as Uber, Google, Yahoo, etc. were once funded by angel investors. In addition to capital, angel investors also offer mentorship to young entrepreneurs.
While angel investors can be an excellent source of capital for your business, convincing angel investors to partner with you requires a solid business plan, an exceptional pitch, and the potential to grow your business significantly. If you’re wondering where you might find an angel investor to pitch to, the Angel Capital Association is an excellent platform that can connect you with angel investors.
Venture capitalists are similar to angel investors but they tend to invest in companies that have shown some traction and have very high growth potential. They also tend to take a more proactive role in the daily operations of the business they are investing in.
Fortunately, this means that they can offer businesses strategic assistance and introduce them to potential partners, customers, and employees.
To attract the interest of venture capitalists, the startup must have a very strong pitch they can rely on. Additionally, the interests and focus of the venture capitalists you are pitching to must also align with your company’s.
With innovations in technology, it has become extremely easy for people today to pitch their business ideas to a larger audience. Crowdfunding platforms such as GoFundMe have recently risen in popularity to allow entrepreneurs to seek investors who are willing to support their ideas or cause. Not only are the crowdfunding platforms easy to set up, but they also allow you to pitch your idea to a wide audience across the globe.
Microfinance providers are organizations that offer microloans to low-income entrepreneurs who traditionally lack access to other sources of finances such as bank loans. Microfinancing is a viable option for small-scale entrepreneurs not eligible for bank loans who are wondering how to raise money for a startup. These short-term loans feature much lower interest rates than other financing options and are typically extended to new startups with very low capital requirements.
There are numerous contests out there for entrepreneurs looking for ways on how to raise money for their startup. These contests or competitions require entrepreneurs to either build a product or pitch their business plan to a panel of judges who can provide funding to their startup. The entrepreneur must have a comprehensive and convincing business plan that stands out from the rest of the competitors to have a chance at succeeding in these competitions. Check out these Top 20 Startup Pitch Competitions that allow you to present your business idea to multiple investors.
Business incubators and accelerator programs are specially designed programs to help small-scale startups grow and flourish. These programs provide a full-scale range of services to the startup they are supporting including management training, workspace, mentorship, education, and access to further investors. Although both terms are often used interchangeably, the difference between an incubator program and an accelerator program is that the former is designed to nurture businesses slowly while accelerators fast-track the growth of the business. Here is a list of the Fifteen Best Incubator And Accelerator Programs.
Bank loans are an entrepreneur’s first thought when thinking about how to raise money for a startup. Banks usually offer two types of financing options to individuals looking to start a business, which is the working capital loan and funding.
A working capital loan is given to businesses to finance their everyday operations like payroll and purchasing for one complete cycle of revenue-generating operations. On the other hand, funding is a normal loan given to entrepreneurs based on their business plans and project report. Read this guide on the Best Practices To Follow Before Applying For A Small Business Loan.
Government programs that offer startup capital are a worthy channel if you’re asking yourself how to raise money for a startup. Several government programs offer grants to upcoming entrepreneurs with solid business plans to help them raise funds for their startups. However, these grant programs are extremely competitive and there is no definitive chance that you will receive a grant. The interest rates of such programs are slightly higher than that of most banks so make sure you do your research and thorough cost-benefit analysis before pursuing the best option.
Several big corporations use product pre-sales as a source to finance their startup ahead of its launch. They offer consumers the option to pre-order or pre-book products in advance before the products come to the market.
Not only is the pre-sale of your products a highly effective way of raising capital for your business that can be used to fulfill your orders but it is also a great way for companies to gauge the demand their product might have when it hits the market.
Business credit cards are one of the easiest and fastest solutions to raising capital for your business. If you’re starting a new business and don’t have large sums of expenses that need to be paid, you can use a business credit card for the day-to-day operations of your business as long as you keep making the minimum payment required to your credit card bill every month.
However, it is important to note that interests rates can accumulate on these cards very quickly, and having large sums of credit card debt on your shoulders can ultimately affect your line of credit.
Online loans are a great way to gain funding for your startup. Thousands of lenders from across the globe are willing to fund your business venture. But when applying for a loan online, make sure that you verify that the website processing your loan application uses SSL encryption and do your research on the lender. Also, make sure to always read the fine print to avoid being scammed.
After conducting thorough market research and analysis for your startup, it is up to you to obtain the necessary funding for your business. Unfortunately, not many entrepreneurs with great ideas know how to raise money for their startup and get the capital they need to drive their idea forward.
See Also: Annual Budgeting Guide For Startups
Many startup owners consult with financial advisors before making the perfect pitch to potential funding groups and investors. Monily’s finance experts have worked with several startup owners at different stages of their business lifecycle to help them gauge their business’s financial health and attract appropriate funding.