Getting startup funds for your idea doesn’t have to be an extensive and stressful process. In fact, the modern lending world has plenty of options for the startup. Here we’ve put together a list of six clever ways for you to secure startup funds for your new business idea.
The first thing that comes to mind when you hear “secure funding” is probably a bank or credit service. Traditionally, these were the main players in startup funding, but in recent years we’ve seen the rise of crowdfunding sites such as Kickstarter.
Crowdfunding sites secure funding from the general public, via donations from friends, family, and even people you’ve never met before. Kickstarter is focused solely on the funding of creative projects and ideas; everything from financing art and literature to tech companies and film projects.
If you’re looking for a way to fund your startup, start with Kickstarter. The site was launched in 2009, and since then it has grown to a worldwide crowdfunding operation with over $4.2 billion pledged in the last decade. That’s an impressive number and certainly speaks to the effectiveness of crowdfunding for startups.
With crowdfunding, there are no loans or interest rates. The money is pledged by backers throughout the world, and you are expected to follow through on the project and provide the backers with some measure of reward for their pledge.
This can be in the form of early access, special additions, or other special rewards. This creates a level of accountability for the startups so that anyone who pledges money will know that it was well spent.
2. Venture Capitalists
In exchange for an equity share, venture capitalists will provide your startup with funding for the early stages of development, after your business has been formed. Venture capital can be a bit more difficult to secure, but it’s not impossible.
To begin with, you’ll need a presentation. Your product or idea should be presented in such a manner that venture capitalists will have no choice but to want to fund it. You’ll need a solid business plan and a product that solves some kind of problem in the market.
It’s difficult for anyone to pledge money to someone they don’t know, and venture capitalists want to be sure that their money is invested well and provide some sort of return. Before you go looking for venture capital, be sure your idea is marketable and has a high-profit margin.
3. Angel Investors
Angel investors and venture capitalists are not the same things, as they’re often mistaken to be. While an angel investor may want to take an equity share of your business in exchange for their capital, often they are more interested in the idea itself.
An angel investor is usually a current or former entrepreneur, and while money is a motivator, often they are also interested in the development of certain industries. They’re usually interested in funding the beginning stages of a company, especially when you’re passionate and organized in your ideas.
This is why it’s so important to have a good business plan. Do your research and put in the extra work to develop an effective business model. This will act as the backbone of your idea, and let potential investors know that you’re serious, organized, and ready to do the work to make your idea successful.
Bootstrapping essentially involves “picking yourself up by your bootstraps” and tapping into your own cash resources to fund your ideas. This can mean personal savings, credit cards, and even borrowing or donations from friends and family.
By borrowing from friends and family or using your own cash resources to fund your resources, you minimize the risk of defaulting on bank loans with high-interest rates or having to pay back investors.
When you use your own funds, you can be in complete control of how they’re allocated within your business and you can secure all shares and equity for yourself. If you don’t have extensive savings accounts or other monetary resources, you may have to start slow and work your way up to your vision.
This can be a rewarding process and also a smart financial decision for the future of your business. Bootstrapping is the “original” way to start a business, and still remains one of the top ways to finance new ideas.
Incubators are either government programs or funded by Venture Capitalist firms. They take impressive startups and provide mentorship and even capital to expand and promote growth within the startup.
There is an application process to become part of an Incubator. It is rigorous and competitive, usually between many different startups all within the same industry, but if you’re approved it will be well worth the wait.
Incubators also provide a free or low-cost workspace for new startups that make it into the programs, but this can be problematic if you have a large team. Be sure to research your options and what exactly you need before applying for an incubator program.
6. Traditional Bank Loans
If you don’t want to try crowdfunding and don’t have the startup capital you need, you can try a traditional bank loan. Depending on your credit score, you’ll have access to decent interest rates, and some banks even have specific programs for businesses. Check out this Upstart review for information on non-traditional lending.
Taking out a loan always carries a risk with it, especially in business. Be sure you’re getting the best rate and never let a bank talk you into something you’re uncomfortable with. Try to keep your borrowing reasonable, and only ask for the amount you need to start the business. Calculate your startup costs down to the penny so you don’t borrow more than you need.
A new startup can be an exciting experience, and with the right funding, your idea can blossom into a full-blown corporate entity in enough time. As long as you’re passionate, confident, and good at researching the market, you should have no trouble securing funding for your ideas.
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