A business startup comes with a lot of responsibilities. If you’ve got a business idea and you think it could make a change in the market, it’s up to you to make it a reality. Funding is an essential part of any business, as, without the seed money, you’ll be unable to fire the starting gun on your, er, startup.
Entrepreneurs are an incredibly clever and industrious bunch, but many are in the dark about how best to fund their startup business idea, preferring instead to focus their energies on a core offering.
Ways to Finance Your Business Idea
Great ideas can only fulfill their potential if they are backed by a stable investment. These are some of the ways you can fund your startup:
1) Personal Money
For many people, the first inclination is to use personal money to make essential purchases. With a new startup creating so many different needs for money, it can be rather challenging to decide what needs to be funded first.
Business costs start right from the time you decide on a business name. For instance, to retain that business name, you need to register a company name via a company formation. Registering a new entity costs money, but it is one of the first requirements to legitimizing your idea.
Personal money can come from savings, and you can finance everything yourself, leaving you with total equity in the organization. One important factor to keep in mind is not only will you need cash for business purchases, but you will need working cash flow. You probably have other financial responsibilities. Therefore, you will need funds to deal with these. If you use up all your savings for your business startup idea, it could leave you in a precarious situation financially as you move forward.
2) Seek for Angel Investors
There are some people out there whose sole job is investing in businesses that might help them make even more money going forward. These are known as angel investors and they have plenty of money to spare. These are the people you should be pitching to if you think your business idea is innovative and has the potential to make big money in the future. There are many online angel investment networks, as well as local investor groups you can pitch to in person, so do your research and start submitting your pitches.
Find the right angel investor and not only will you benefit from their financial support but also their wisdom: oftentimes, they offer mentorship as a side dish alongside their capital. Although they generally offer less financial backing than banks and venture capital funds.
Crowdfunding has taken off in a big way over the last few years. Crowdfunding is a favorite of the digital economy, and probably the quickest way of obtaining finance for a new business. All you need is a compelling pitch, one which strongly references your start-up’s potential for growth, as well as a knack for interacting with your cash-rich community. The sooner you get started and get creative with your crowdfunding campaign, the sooner you’ll start to draw more people in.
As a side benefit, crowdfunding is a nifty form of advertising, a way of stimulating public interest in your company before it’s even made its debut.
4) Bank Loans
In the modern age, it almost seems anachronistic to seek a bank loan. But if you have a solid credit history or existing assets that you’re happy to offer as collateral, as well as a workable business plan with clear profit forecasts, it’s still possible to launch your start-up with an infusion of bank cash. If you want to get money, it makes sense to head to a bank where they have lots of it. Their loans might come with harsh interest rates that could cause you plenty of problems further down the line though.
5) Find a venture capitalist
Finding a venture capitalist who shares your vision, or at the very least believes in your ability to turn your idea into a successful, profitable venture, is a good way of raising cash. The main con with this option is that venture capitalists are typically looking for the next big thing and so, many entrepreneurs struggle to convey the scale-ability of their enterprise.
Venture capital funds, by their very nature, have a short shelf life as they generally seek to recover their investment, turn a profit then move on to the next fresh startup.
6) Pursue startup grants
Grants are great for people who don’t know where else to turn. If you have an unusual idea that investors and banks are scared of and crowdfunding doesn’t seem like a realistic option for you, it makes sense to apply for startup grants. While you shouldn’t expect to be cut a massive cheque, there are dozens of grants available, offered by national and state governments (as well as private enterprises) in the interests of stimulating the economy and growing the jobs market so it’s worth checking out your options for funding your startup.
The main drawback is the fierce competitiveness of such grants, as well as the box-ticking involved, it can be a frustratingly drawn-out process, but that’s the tradeoff for retaining equity.
7) Family and Friends
Lastly, the idea of hitting friends and family for cash doesn’t sit well with some entrepreneurs, but many of the world’s top magnates readily admit to borrowing from their social network early in their careers. As such, you should have no compunction about doing the same.
On the other hand, it’s not easy to put together a hefty bankroll relying solely on family and friends; and you have to ask yourself whether you want to risk straining meaningful relationships.
Perhaps a combination of funding options is best, but only you will truly know. All these above options require a great deal of consideration and researching because each of the options that have been discussed here has its own benefits and drawbacks; don’t forget that when you’re making your decision.