So I am asked all the time how to raise funding for your startup, and “where did you go for your investors” or “where did you get your partners to invest in your business idea.” Well its no easy thing and if there’s one dilemma that all entrepreneurs have to grapple with when working on their startups – it’s funding.
Unless you’re well off enough to foot the capital yourself or have wealthy relatives, seed and growth capital are a headache. As today’s business landscape gets more competitive, the quest for that extra coin keeps getting more elusive. What then can entrepreneurs do to get their businesses off the ground? The answer may lie between new technologies and polishing the way startup owners pitch their business ideas.
Family and friends
Family and friends are the easiest sources of capital for startups. They are the most likely bunch to give you money due to the relationship you have with them. They know you, they know the journey you have taken trying to give your business a foothold and they understand what you stand for.
However, their decision to fund you is based more on sentiments rather than business fundamentals. For this reason, it’s important to draw a line between friendship and business. If not checked, emotions could later threaten to pull your investors out if your friendship dampens.
More so, their ability to fund you is met by two key obstacles. One is the availability of funds. No matter how much they like your idea and support your dream, they can only fund you if they have the money.
The other drawback with this kind of funding is the failed attempts experienced by many entrepreneurs. Few startups manage to soar in their first leap and it can take several attempts to get the business right.
The business therefore flops and so does your family and friends’ money, which dims the likelihood of seeking further funding from them again.
Money lending institutions such as banks and venture firms are another tier of funding available for startups. When it comes to these financial institutions, what matters most is the level of financial risk you can hedge away. For this reason, these bodies will most often ask you for collateral in form of assets, bank statements, financial guarantors etc. This is to create a layer of insulation, should you default.
In tough economic times, seeking funding for a startup can be a hard sell. The banks may simply ask for interests that are way to high.
These institutions may also come to the conclusion that you just don’t qualify due to your past credit or your business’ outlook. To increase chances of funding with financial institutions, be sure to draw up an impressive business plan.
Related: How To Minimise Startup Risk
Outline what your business is all about, how much funding you need and where that money will go. Calculate your business projections and show how your business will gain profitability and when.
Better still, show that you already have commitments form clients or customers to use your services or buy your products once you go into service or production.
An angel investor is basically anyone with the finances and is willing to fund your startup. However, just like banks, angel investors have to be convinced that they will get their money back, and a little more.
You therefore have to woo them in just the same way you do with the banks. You must have a business plan that makes sense and a business idea that resonates with the times.
When pitching to angel investors, it’s all about the numbers. Show them how your startup will make money and which niche your business will address.
If the numbers make sense, then you stand a chance. Note that angel investors often have a deep background of running businesses and funding businesses.
Some angels will also come from the financial services industry or have a banking background.
For that reason, they are not any easier to convince. You must put your best foot forward and leave nothing to chance.
For their funding, you must give angel investors something back in return. For the most part, startup owners have to part with a portion of their equity.
You therefore have to decide just how much stake in your startup you are willing to give up for the offered sum. On the brighter side, in most cases angel investors will bring more than just money to the table.
As a partner in your startup, they inject experience, networks and the possibility of future funding. Aligning yourself with a valuable investor can therefore prove very lucrative in the end.
Governments too are not left behind in trying to empower their citizens to nurture their talents and create employment. To do so, they have different funds and grants catered to different segments of the population, such as the youth or business ideas that touch on technology, healthcare and so forth.
Getting funding from these kitties is much like seeking funding from a bank. First, you’ll need to qualify for the target audience meant for the fund and then you’ll need to prepare a business plan.
However, government funding is better that financial institutions in that is offers better terms for any money lent. Funds are often lower than the prevailing bank rates and grants, well, they’re free.
Some governemt schemes you don’t have to pay back, but are dependeant on the terms of issuence. Grants and funds are dependent on availability and competition from other entrepreneurs eyeing the same funds.
Crowdfunding is the newest method to raise funds and it’s all thanks to the internet. Crowdfunding sites such as Kickstarter, Fundable and Seedrs have raised millions of dollars to see small startups overcome the greatest odds and rise from the ashes.
This simple, yet brilliant alternative, could be your fastest way to getting your business off the ground. The best thing about it is that your business gets funded by ordinary people who fall in love with your idea.
Unlike other funding options, the trick with crowdfunding is to show people that your idea can work and that you are addressing a niche area that holds potential.
However, just because you’re dealing with normal folk does not mean you can slack off. Aim to impress as you pitch your idea to the masses.
Take professional photos of your products and hire someone to create impressive videos and charts. Don’t forget to show how your business intends to break even and prosper. Use good quality pitch decks to create slides.
The common denominator with all these startup funding sources is that none are easy. However, if you have the zeal to push through, you’re likely to land somewhere eventually.
Remember to make the numbers work and show your investors how you plan to make your business profitable. If your pitch gets rejected, don’t take it to heart, dust yourself, make the pitch better and try again.
Hopefully this information will give a few startups or entrepreneurs some more ideas, have you had a successful story with funding your own startup or business? Then share it with us in the comments below and share your advice!