Getting your startup from the idea stage to the execution stage often requires you to jump through several hoops. Here are 4 ideas to help you on your journey to find funding for your startup.
Managing the day-to-day expenses of your firm requires initial working capital. The recruitment has to be on point, salaries have to be paid, equipment needs to be purchased and recurring dues need to be cleared.
Raising the capital for meeting the existing operational expenses and starting new investments is a struggle every startup needs to pass through. Since you don’t have concrete results to show for bagging investments, convincing potential investors is a huge challenge in the initial days of startup’s operations.
Here are 4 ways you can successfully raise funds for your startup.
Bootstrapping, or self-funding, is one of the most common and effective ways of finance your startup. First-time entrepreneurs typically have a hard time securing funds for their ventures. Thus, investing from any previous savings or obtaining funds from friends and family’s contribution is a simpler way of getting started.
The cost of raising funds is minimal, the formalities associated with securities are also minimal, and the rate of interest is flexible. All of these make bootstrapping a lucrative option to get the initial funding for your startup venture.
When you try to raise funds from outside sources, the business needs to already display a significant amount of traction and have a plan in place for future growth. In case you don’t have a concrete plan of action, securing external funding is almost impossible. Bootstrapping doesn’t face the same constraints and is thus a viable option for initial stage startups.
Self-funding is preferable because you won’t lose out on equity in return for capital and have complete control over the direction your startup takes and its future scope. This option works perfectly if the initial requirement amount is small or you don’t need huge capital from day 1 of starting operations. The liability becomes too much when that is not the case.
On top of all of this, raising money from friends and family often propels entrepreneurs to work even harder at their venture because of the emotional investment involved.
2. Angel Investors
These angel investors fill the gap that exists between the small scale financing provided by bootstrapping and the large scale financial institutions, such as venture capital firms. Angel investors are typically the individuals who have access to financial resources and are looking for investment options that would yield more returns than traditional investment opportunities.
Angel investment is a form of equity financing in which the investor hands out capital for startup expansion in return for a financial stake and an equity position in the company. It helps raise the cash flow but, securing angel investment is not an easy task.
An angel investor is typically on the lookout for an investment opportunity that yields at least 25 percent in returns. Your business needs to show signs of potential for you to be able to secure this critical funding. How can you prove that your startup venture is a worthy investment to get the angel investors to take a bet on you?
Don’t just go forth with mere words.
It is impossible to sell seasoned investors on mere ideas. Your startup idea may seem revolutionary to you but unless you have something concrete to floor the investors, raising capital is not going to be easy.
Let your actions speak louder than your words. If you’re creating an app, build the initial prototype. Invest some resources to make a high-fidelity clickable prototype and give it in the hands of the investors. Just saying how you are going to solve a problem for your target customers isn’t going to cut it… you need to show it, as well.
3. Startup Accelerators and Venture Capitalists
Startup accelerators and venture capital firms are every entrepreneur’s dream and can give your firm the traction it needs to expand and grow.
Accelerators provide you with the chance to raise funds while presenting a brilliant opportunity to network with like-minded entrepreneurs and forge meaningful connections. Accelerators give you access to the much-needed resources, funding and, arguably the most important, the right mentorship to take your startup to the next level.
Venture capitalists, on the other hand, are companies that invest in startups that show promise and potential for growth, despite being risky. The amount invested is higher, due to access to a wider pool of resources. The rate of return that VCs expect is also higher. The loss of stake and control is the downside of raising funds from VCs.
This is the reason that, while venture capital firms may hear hundreds of pitches, they choose to invest in a select few. The pitch, product, and presentation need to be a league ahead of the competition in order to garner investor interest and eventual investment.
Crowdfunding is a novel way of raising funds for your startup and, if executed correctly, can help fund the operational capital along with raising significant interest in your startup.
From Kickstarter to AngelList and Fundable, crowdfunding websites already have a string of businesses to their credit that went on to raise millions of dollars in startup capital. You need to give a detailed description of your business platform, the business goals, how you plan on making a profit, how much funding needs to be raised, and how that capital will be utilized.
Any person can contribute towards helping your startup. They need to believe in your cause or be interested in your product. The people who invest can fill in online pledges for pre-buying the product or contribute in the form of a donation. The real value of the crowdfunding method lies in the power of numbers. Even a small contribution from a large number of people can result in raising a significant amount of funding for your startup.