Having a novel business idea doesn’t count if you don’t have sufficient funding to back it up. If you want to finance your new business venture, family and friends are not the only options you have available. Going in, startup founders should understand that raising startup capital is challenging, and it often takes longer than expected.
A recent study found that the majority of startups fail within the first five years of operation; and the leading cause is: financial problems. Translating a business idea into concrete profits requires a lot of capital. The need for capital raises a key question for the entrepreneurs: What is the best way to finance a business at every stage of its development.
There are many ways using which entrepreneurs can secure capital for their business. Therefore, this article will be showing you the different ways in which you could secure funding for your business idea.
5 Ways to Raise Startup Funds
1. Entrepreneurial Capital
Entrepreneurial capital or venture capital firms (VCs) are often the first choice for startups that are seeking funding. These firms not only dole out capital but also give certain services, such as strategic assistance as well as connecting to prospects, customers, and employees, that can help businesses operate better.
However, venture capital funds are hard to secure. Venture capitalists generally invest in startups that have high growth potential and already show some traction, such as a working prototype, early customer adoption, etc.
Securing and then putting business funds to good use is a skill that doesn’t come overnight. Certified financial analysts, adept at making accurate calculations regarding the setup costs required to launch a business, can help entrepreneurs set realistic expectations for securing fundings.
Their rigorous training gives them the eye and the mind for numbers. But not every aspiring CFA can pass those grueling exams. That is why most go through the Wiley CFA prep material to increase their chances of making it into the coveted ranks of financial analysts.
Venture capitalists tend to focus their investment efforts based on one or more of the following criteria:
- Industry sectors (software, digital media, SaaS, semiconductors, mobile, biotech, electronics, consumer goods, etc.)
- A startup’s stage (early seed or Series A rounds, or later rounds with traction and revenue)
- Location (e.g., San Francisco/Silicon Valley, New York, etc.)
- Before connecting with a venture capitalist for funding, learn about their investment motivations.
Networking plays a major role here. VCs sometimes aren’t even aware of the portfolios they have investments in, and will ignore emails from entrepreneurs with no connection to them. Spread your network, and see if you can secure funding for your enterprise through one of the venture capitalists.
2. Credit Cards
There are several credit card companies that specialize in catering to small businesses. Many of these cards offer special perks: cashback, airline miles, and other perks.
It’s possible that issuers require that the card be linked to the business owner’s credit report and that the owner provide a guarantee. You would, of course, be charged for defaults and late payments on the business credit card in case you couldn’t make payments on time.
Unpaid balances on a credit card can incur high-interest rates, ranging from 5% to 19.9%. Some credit card companies offer introductory rates of 0% for a few months.
If you are a small business, you can apply for a credit card online or at your bank. Capital One Bank, Bank of America, Wells Fargo, American Express, and Chase are the main traditional lenders for small businesses.
3. Business loans
Small businesses can also borrow from a wide variety of institutional and non-institutional lenders. You can use these types of loans to expand your business, fund new research and development, increase sales and marketing activities, hire new staff, and much more.
There are different types of small business loans available, and your lender will base the kind of loan you qualify for on your business needs, the loan’s length, and the loan’s specific terms. Some of them are:
- Term loans for small businesses
- Loans for machinery and equipment
- Small business loans from the SBA (Small Business Administration)
4. Crowdfunding
The term “crowdfunding” refers to raising funding through a number of sources, such as crowdfunding platforms.
Startup entrepreneurs raise not only startup funds through crowdfunding but also get to market their product or service to a wider audience. And, plus, it is not that hard to start a crowdfunding campaign. Create a crowdfunding profile that describes your company, the product or service, and the amount of money you hope to raise through the campaign.
Depending on your investor’s choice, you might either get donations—as in handout money—or you’ll receive funding in exchange for discounted offers on your product or service, or equity shares in your company.
For a crowdfunding campaign to succeed, you must offer the investors with a compelling story about your product, service, or company, and offer a meaningful reward for the donors. Crowdfunding campaigns have allowed startups to raise thousands, even millions, of dollars.
5. Angel funding
Angel investors typically invest in startups or companies at an early stage in exchange for ownership shares. However, Angel investors are increasingly making multiple investments in the hopes of generating outsized returns and trying to replicate the high-profile success stories of Uber, WhatsApp, and Facebook. Angel investments typically range from $25,000 to $100,000 per company but can be higher.
