So you've got a business ready to go. Yay! Now depending on the nature of your business, you will likely need money! Whether it's a little or a lot, in this article you'll learn about the most common types of funding and which is best for you.
Funding the business yourself. Using your own savings, income, financial resources and careful use of credit cards. It is very important to make the most of the money you have. Whilst this may be limiting (depending on the amount of money available) it still gives you full control over the business and is recommended for small startups. You can bootstrap it until you’re ready to raise more money at a higher valuation once you’ve proven the need for your business yourself.
Family & Friends
If you don’t have any money available yourself, consider asking friends and family to invest. Now, it’s important to let them know that there is a chance the money may not be returned. More often than not your friends and family are investing in you, not your business. The terms can be negotiated between each party, and will most likely be less strict or as difficult as an investor. Make sure you repay them for their faith and support if you are successful.
Crowdfunding is where you raise money from your customers in advance. Instead of taking large chunks from one or a small number of investors, you take little bits from a lot of people. It’s about volume. By definition it is “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.”
There have been many successful crowdfunding campaigns on sites like Kickstarter and IndieGogo (into the millions) which are worth looking at for inspiration even if you don’t need to raise that much. Below are two links: the first is a look at ‘7 Incredibly Successful Crowdfunding Campaigns’ and the second is ’10 Secrets of Highly Successful Crowdfunding Campaigns’.
- 7 Incredibly Successful Crowdfunding Campaigns’
- 10 Secrets of Highly Successful Crowdfunding Campaigns
Once your business starts growing and you see a bright future of revenues, you can approach sophisticated angel investors for more funds. These individuals can be found in most communities and on the internet. Almost every single time they will want to see something that is already up and running that has steady growth.
In exchange for funds they will usually take ownership equity or a convertible debt. Investments from these investors can be anywhere between $50,000 and $500,000. At this stage of the business, angels become very real and serious investors high expectations looking for solid results.
Bank Loans & Venture Capital.
These are not for the startup phase. Bank loans are for later if you require funds for operating costs and long term growth. This a long, complex process that requires years of financial information on the business and the entrepreneur. Banks want to guarantee the loan, so they want collateral.
For some companies growing quickly, they reach a point when they need VC’s (Venture Capital) to generate hyper growth. In this scenario the company may require tens of millions of dollars to enter new markets, expand or add new products. Just like a bank there is a lot of due diligence to make sure it’s a sound investment. The goal of a VC is to grow the business extremely quickly and sell it to reap the financial rewards for their partners. Keep this in mind for later. VC’s want to sell, even if you don't want to.
Keep all of these different methods in mind, and then have a think about which one is most suitable for you. Then you can raise some funds and get started!
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