With every new business, one essential element of helping it get started, and get off the ground is funding. Whether it be to create the highest quality product and service on the market, increase your marketing strategy, or pay employees.
Having sufficient funding can make a huge difference in helping your business grow and succeed. Whilst many people finance their new companies with their own capital or by borrowing money from family or friends, there are many other options available. However, raising funds isn’t as easy as it may seem, and it can take some time.
So, what are some of the best ways to get funding as a startup?
A popular method of raising funds for your business is through angel investors. An angel investor is typically an individual who invests their own money in a startup or early-stage company in exchange for a minority stake (usually between 10% and 25%). They tend to be entrepreneurs or people with extensive experience in the business world. However, angel investment is about more than just money. Angels offer mentoring and support alongside their investment, and businesses that receive investment will generally benefit from the angel investor’s time, skills, contacts and business knowledge. Angels take a hands-on approach and spend lots of time with the entrepreneur helping to push the business forward.
Angel investing in startups has become far more popular in recent years, and high-profile success stories like Uber, WhatsApp, and Facebook have spurred far more angel investments to take place.
Benefits of Angel Investment
Flexibility; When compared to alternative forms of business funding, business angels are typically negotiable because they invest from their own money.
No repayment is required; Unlike banks, business angels fund businesses or entrepreneurs with the money they need to get going, getting an ownership stake in the company in return
Expert knowledge from investors; Because most angel investors are seasoned investors and entrepreneurs, they provide expert support, contacts, and guidance that can help your business skyrocket.
They’re everywhere; One of the best things about business angels is that you can find them everywhere. Many groups of business angels across the globe meet frequently to access local opportunities that might be available.
“Crowdfunding” is the practice of raising funding through multiple funders, often via popular crowdfunding websites.
Crowdfunding gives startup entrepreneurs the opportunity to raise startup funding for their business and can help a company promote its products or services through the campaign. Setting up a crowdfunding campaign is also a pretty simple way to receive funding, and gain exposure. There are multiple platforms such as; Seedrs, GoFundMe, and Crowdcube that allow you to set up a profile, describing your company and its business, and the amount of money you are trying to raise. People who are interested in what you are trying to do, and what to be involved in helping your business grow can donate to your campaign, typically in exchange for some kind of reward for their donation (one of your products or services, a discount based on how much donated, or some other perk), or for some form of equity or profit share in your business.
As well as raising funds, Crowdfunding is a good way to create a community around your business, of like-minded people who are interested in your product, services, and your story. So ensuring you get your story across in your crowdfunding campaign is vital.
Benefits of Crowdfunding
It can be a fast way to raise finance with no upfront fees
Pitching a project or business through the online platform can be a valuable form of marketing and result in media attention
By sharing your idea, you can often get feedback and expert guidance on how to improve it
It is a good way to test the public’s reaction to your product/idea - if people are keen to invest it is a good sign that your idea could work well in the market
Investors can track your progress - this may help you to promote your brand through their networks
Another popular form of raising investment for startup businesses is to turn to Venture Capital (VC) firms. These firms can provide businesses with capital; strategic assistance; introductions to potential customers, partners, and employees; and much more.
Although beneficial, gaining venture capital can be slightly harder than other forms of fundraising. Venture capitalists typically look to invest in startups that are pursuing big opportunities with high growth potential, and that have already shown some traction; for example, they have a working product or service, existing consumers, etc. So it can often be a type of fundraising businesses look to do after already becoming established, and looking to increase their growth.
VCs are a highly desirable investment type, so the best way to get the attention of a VC is to have a warm introduction through one of their trusted colleagues, or another professional acquaintance of the VC, such as a lawyer or fellow entrepreneur. VCs are inundated with people wanting investment - so standing out is key. Make sure you have a good “elevator pitch” and a strong investor pitch deck to attract the interest of a VC.
Benefits of Venture Capital Investment
Business expertise; Aside from the financial backing, obtaining venture capital financing can provide a start-up or young business with a valuable source of guidance and consultation. This can help with a variety of business decisions, including financial management and human resource management.
Opportunity for expansion; Venture Capital provides the company with an opportunity to expand. This would not have been possible through other methods like bank loans.
Helpful in building networks and connections; Venture capitalists have a huge network of connections in the business community. These connections could be advantageous for the start-ups to grow and become successful
Small Business Loans
If you need funds to help your business grow or expand, a business loan could offer the solution you need. Alternatively to the previous methods discussed, business loans mean you don’t have to provide anything in exchange for the investment, rather you receive a loan and make repayments from your own pocket.
There are two main types of loans you can use to grow your business; secured and unsecured
So, what’s the difference?
Unsecured loans mean that your business can borrow money without having to use your business assets as security. Whereas secure loans let your business borrow money using an asset as security. If you don’t pay back the loan, the lender can sell it to get their money back. Secured loans tend to have lower interest rates than unsecured ones and are useful for borrowing larger amounts. Once you decide which loan is right for you and your business you can use the loan to purchase stock, employ staff, pay off debts expand operations etc.
Benefits of Small business loans
Allow you to grow your business; Bank loans are a convenient way to get extra finance, without needing to wait until your business has generated enough profit to fund expansion yourself. Taking out a loan means you can put your plans into action much earlier and take advantage of any business opportunities that present themselves, enabling faster and more accelerated growth.
Keep full control of your company; The main advantage of a bank loan, as with any kind of small business loan, is the ability to get an injection to their cash flow without losing any control of your company.
Extra services; If you already have a relationship with a bank, if you have an account with them for example, they may be able to offer you lending advice based on their existing understanding of your business. Some banks may also provide you with a personal advisor to help answer any questions you have about the lending process
Favourable interest rates; The interest rates on a small business bank loan can be more favourable than other online lenders. Especially if you are looking for a more long-term funding option, taking out a bank loan will normally work out much better value than using an overdraft, credit card, or personal loan.
Little interference from the bank; One of the other advantages of a small business bank loan is that, as long as you make the repayments, banks shouldn’t interfere or set restrictions on what you use the loan for.
To conclude, there are many options for your startup business to find funding and raise investment, so it’s important to do your research and find out which route works best for you and your business.