If as an aspiring entrepreneur, you have no clue as to how difficult funding for a startup is, you should probably just get a day job and forget your entrepreneurial plans while it’s still early days. That being said, when considering the funding options for your startup, it’s vital that you understand that not every source of funding is the right one. Finding out the right sources of funding early on in your entrepreneurial journey will save you time and produce better results down the road. It’s easy to start a company, host a website and create pages on social media, but what determines whether or not you will still be in business a year or 18 months from now is not just the amount of sales you can make, but if you can get the funding needed to stay in business. There is always money out there, but knowing where to find it and how to secure it is crucial to the success of any venture. Also, you need to know the conditions that come with each source of funding. This is a list of the top 5 sources of capital startups can choose from.
- Bootstrap: This is the first kind of funding a startup receives. When you start a business with your personal money as the sole source of funding, you are bootstrapping. Though the lack of funding from external sources with far deeper pockets than you can be a hindrance, it could also work in your favour. When you bootstrap, you owe no investors any stake in your company and if you go on to build a successful business based on personal finances and revenue generated from the startup, the profits will be all yours to enjoy. A lot of startups in the Silicon Valley use the bootstrapping route as sources of capital.
- Private lenders: This is probably the most convenient way for new startups to get funding and begin their business operations. Startup founders can get funds they need without government involvement via private lenders. One popular, very effective source of funding through private lenders is My Business Funded. They have built a good reputation for funding startups quickly and efficiently, even though they’ve only been operating for a relatively short time. In turn, they allow founders to worry less about operational costs, and focus on selling. Remember, a startup doesn’t have to be a tech company; it’s any company on its way up!
- Crowdfunding: Crowdfunding is a centralized way for startups to reach out to large audiences in their niches for financial help to make their business ideas a reality. It is a new method of financing designed to address the problems encountered by startups during early-stage capital formation. For startups, raising capital is time-consuming and limited by geography and networks. Reduced access to traditional funding sources such as bank loans and VCs have made way for this funding method that leverages the internet to obtain investments from everyday individuals. In return for the funds, you not only create a community around your product, but also acquire your first users to test, utilize, and help innovate what you are working toward. Kickstarter, Indigogo and Gofundme are some popular examples of crowdfunding platforms.
- Angel investors: angel investors are go-to advisors who may be compensated with some equity in the company you’re building. These angels could be found through a personal network, on the internet or you could corner someone and make an elevator pitch when you get the chance. These angel investors have the added benefit of having personal networks that are as impressive as their net worths and can be taken advantage of – if you know how to ask. Angel.co, as the name suggests is one site where angel investors can be found.
- Incubators: Business incubators are companies, universities or other organizations whose aim is to speed up the growth and success of startups by providing resources–laboratories, office space, consulting, cash, marketing–in exchange for equity in young companies when they are most vulnerable. One upside to this source of funding is not only access to several capital choices, but also a host of intangible benefits including mentorship, expertise and networking.