Starting a company and making it successful depends on a number of different factors. From the quality of the idea, through the execution of the project and finding the right people, there are numerous matters you need to consider at the different stages.
However, one factor is going to be constantly on your mind and its presence is absolutely crucial – money. This article examines the various ways a startup can fund its operations. They can be researched separately, or combined throughout the development stages of the company.
The first way of funding is perhaps the one that most entrepreneurs always rely on at one point or another, but mostly in the beginning stages. Bootstrapping basically means using your own funds. It is useful and achievable when you start a business, when costs are still relatively low and you can manage to start with your savings.
The advantage is that the company is yours and only yours, you do not give away any equity or control. On the backside, it can be quite overwhelming to depend entirely on your own funds, especially when you are not yet quite sure whether the idea is going to work in the first place. In that sense, you carry the whole risk on your shoulders.
Perhaps the best advice if you are in such a situation is to keep costs to a minimum.
Small Business Loans
Another option which many startup owners prefer is to apply for a small business loan from your bank. Nowadays there are numerous programs available in banks for startups and entrepreneurs. On the plus side, you still keep ownership and control over your company. A disadvantage is that banks often have an infinite number of requirements that you need to fulfil. What is more, you will most likely have to give a complete description of how you intend to spend the money, which in the beginning phase of a business is often hard to predict.
One of the innovative methods of obtaining funds for your startup is by launching a crowdfunding campaign. It is unique in the way that anyone can donate to your business idea. The owner describes the product or service that is to be developed and shares it online on the platform. People can donate money, as depending on the platform in return they may get early delivery of products, some small gift or to make it as an actual donation – without getting anything back.
You set a milestone that you want to achieve and if you manage to gather the funds, they are sent to you. To make sure everything will go as planned, it’s best to get through the legal checklist of setting up a crowdfunding campaign. Overall, crowdfunding is a great way to fund your business if you think you can create a hype about it. Be aware that crowdfunding is highly competitive and only a small number of all submitted campaigns manage to gain funds. In the end the most important part of a successful campaign is the story behind the product.
Join a Startup Incubator or Accelerator
Another option for funding your business idea that became really popular lately is joining an accelerator or startup incubator. While the support that you will receive by such organizations will entail different benefits than money, many incubators and accelerators also offer seed funding. However their main support will be to provide with a venue,
resources, advice and mentorship. They usually work jointly with universities, so students are of considerable advantage when applying. Look around your location and get in touch with such incubators as you may benefit significantly from them.
Venture Capital Investment
Venture capitalists are professional groups that specifically deal with funding startups and providing resources to help them grow. As you can imagine, these groups have vast financial resources at their disposal and usually make big investments in young companies. The best way to get in touch with some venture capital investors is in person, so attending networking events is a must.
As tempting as it may seem to receive a couple millions, it has its cost. Venture capitalists look to invest into stable companies with established teams and clear business plans and objectives. What is more, you will most likely have to give them a part of the company for their investment, and they will also want to be actively involved in the management. So if you do not want to give out control over your business, VC may not be the ideal option for you.
Another form of external investment are angel investors. These are persons who provide funding for startups, similar to venture capitalists but working alone and on a much smaller scale. Typically such an investor will request a large equity share of your company in return to his investment, sometimes as much as 49%. Similarly to the VC funding, if you do not like to share ownership and control over your company with someone else, you should think twice before seeking angel funding.
Deciding on the way you are going to fund your business is an important choice that needs good consideration. Given the variety of different options, one should evaluate carefully which way to choose.