Ok, so you’re planning to set up a business. You have that revolutionary idea that could change the way people use services and you could bring about a change in the world. The only thing that’s keeping from giving it a shot is the funding part.
Well, raising capital is certainly one of the most difficult part associated with launching a business. However, these days new technologies and platforms have provided multiple ways of funding a startup. Entrepreneurship, once only considered to be a venture of rich individuals, now is being taken up by innovators who don’t have much resources but can rely on the growing venture industry. Also, as angels funding gained popularity, startups found a way to get seed funds for their business what VC’s would not entertain. Although, most
However, there’re some funding ways that work best for certain kinds of businesses. Here’re some of the popular ways of funding listed below:
Also known as self-funding, bootstrapping is by far the most preferred way of funding a startup business. Around 85% of startups around the globe are self-funded. With no credit history or assurance of success, businesses often find it difficult to apply for loans or convince investors. In such a scenario, entrepreneurs can use their savings or ask for financial help from family and friends. People you have personal relations with are often flexible about the interest rates too.
Ever since Kickstarter and Indiegogo have emerged as crowdfunding platforms, more and more entrepreneurs are opting for this medium. Usually the nonprofit organizations are the one who receive their target funding as some ‘noble cause’ is associated with their business, but even people who want to launch a product can also get funded through that platform. It has also proved to be a nice platform for pre-selling a product or service in order to understand the market. One of the best advantage of crowdfunding is that your investors are not the shareholders in your company and you get to have the full ownership of your business.
It all started in the 17th century when people with surplus cash would fund theatres to keep running. In the present day too angel investors invest in businesses in order to have some equity share in the company for as much as 30%. They often take risks in investments for higher returns. Most of the investors are retired entrepreneurs who, along with funding, also offer mentorship to the businesses.
For startups who need a heavy funding for their business, venture capital prove to be an efficient way. VCs are usually professionally run funds who are ready to invest in companies that can demonstrate huge potential. They provide funds against some equity and usually exit when there’s an acquisition or IPO. Since VCs are experienced and usually have a lot of people managing them, startups get mentorship, expert advice and a lot more benefits like evaluation of the business, sustainability, and scalability point of view.
Since there are plenty of startups emerging these days, contests provide grants based on your pitch, business idea, and other aspects. While you have to compete with other startups, it can give you popularity if you’re able to win some cash prizes. Dropbox, GoldieBlox, and Mint are some of the examples that were launched with prize money.
Well, whatever way you choose to be funded, make sure you know the pros and cons of each. It’s important to do your research and consult a lot of people. Going with the right approach will ensure that your small business will see the light of the day.