There are different methods available for raising capital for your business.
“Where will I get funding from for my business project?” this is indeed the most common question among people willing to start a new business. Getting funding is tough, and it’s easy to see why. Just consider the facts: only 50% of small businesses formed since 2010 have lasted longer than 4 years, and just 3% make it to a fifth. Moreover, the lack of funding is the reason for more than 80% of the start-ups that fail.
Though it is definitely difficult, this does not mean it is impossible. Out of the box thought and awareness of all options available will surely help in this situation. Some of the ways that are common solutions to this issue are mentioned below:
Angel investors offer a good route of funding, especially if your company or product requires space, technology, and a team that cannot be financed through smaller cost-saving methods. Angel investors usually invest between $10,000 and $2,000,000 and find promising companies that they do not have ties to already. It is advisable doing your research to find investors that share similar industries as that of your own, and are able to provide the funds you need, however, there are a number of resources that can be consulted to help you, such as Angel List and Angel Capital Association.
The venture capital route has its own pros and cons. It works on give and take policy. To get significant capital you have to give share or even control of your company to investors. This option should not be considered until you are looking for more than $1,000,000. Moreover, it is time-consuming, with around 6 months being required from the initial search and close of the deal. Furthermore, VCs often look to recover their investment within a 3-to-5 year window, which can be an issue if you are trying to market a product that is taking longer than that to get to market.
However, once the necessity of larger investment comes up, venture capital can allow you to grow remarkably, and it can be difficult to find any other way that offers this. VC Investors at some of the stages of funding are experienced and have knowledge that can be useful for any company looking to grow, allowing you to evaluate the business from a sustainability and scalability point of view.
Small Business Grants
The best part of small business grants is that they don’t ask for any repayment and trade of equity. Although often described as ‘Free Money’, you still need to do full research and apply, ensuring that your grant application stresses that your company and the goals of the sponsor are in harmony. Although, applying for government grants can be both monotonous and troublesome, but it holds the potential to significantly grow your start-up.
Start-ups have discovered this new way of funding their business i.e. crowdfunding. In crowdfunding, start-ups post their business and project onto a crowdfunding platform and receive pledges from consumers who promise to donate to the company based on fulfilling certain criteria. Rather than presenting an ordinary pitch deck, the CEO or founder will usually produce a video to accompany the platform post, detailing the vision and mission of the company, plans to earn a profit, capital requirement, and reasons for the same.
Crowdfunding can be a wise move as it can also generate interest that can be used in the marketing of the product as well. Launching and goal-hitting can also help to depend on the company to generate outside media attention as well. However, it is not entirely risk-free.
Incubators and Accelerators
Accelerator and Incubator programs work to assist start-ups over a short period of 4 – 8 months and are locally focused. Along with their financial contributions, these programs also help you and your company to build potential connections with others involved in the program, from investors to mentors. Although almost identical by design, the notable difference between an incubator and an accelerator is the pace of development within the program. Incubators tend to be more meticulous and nurturing towards a company, whereas Accelerators tend to be more directing towards hitting particular aims speedily.
Forming a Partnership
It is important to remember that when it comes to strategic partnerships, 85% of companies say they are vital to their growth. Along with knowledge and expertise, having a partner also allows you to share your financial risk and resources.
If you partner with a more established company, they may have their own strategic interests in helping you enhance your product, and may contribute financially to do so. This can be said as a cost- and control-effective route to funding.
Competitions can be one of the great opportunities for start-up funding, especially as the number of contests continues to grow as more organizers are attracted to their benefits. Usually, such competitions either require you to build a product or a business plan. To choose to follow this route, your pitch deck and business plan are essential.
Thus, through these different funding routes, startups and even businesses looking forward to potential growth can achieve their goals without having to worry about “Where will I get funding from?”