6+ Best Startup Funding Options For Entrepreneurs!
The big giant companies working around the world had once started as small startups. However, the term startup was coined later. The startup culture around the globe has grown tremendously. According to reports of the Statistica Research Department, by 2020, the number of new fintech startups only is more than 6.5 thousand.
Startup funding is a big question mark when an entrepreneur decides to bring his idea into working. Startup funding can be defined in easy terms as capital requirements or startup capital. It is the amount of money needed to launch a new business. There are different sources where your startup funding can come from.
This blog intends to discuss different sources of startup funding available for a startup founder.
What are the different startup funding options?
Startup funding is often associated with venture capital. Although venture capital dominates in its proportion compared to the other financing sources, it is not the only source of startup fundings. The truth is that venture capital is just one among numerous options of startup funding. Let’s find out different options for getting funds for your business idea.
Startup Funding- Owner Equity
When the business idea is in the initial stage, you might have doubts if the idea will work or not. It is challenging to convince any other person to believe in you at that stage, and many entrepreneurs rely on their stream of finances. It can be savings, investments, or any other source of personal finance. Funding your startup with your capital is called bootstrapping.
There are many benefits of bootstrapping. The owner equity grants you the control of your whole business. You don’t have to share the ownership with third parties and make decision-making fast. And all the success of your business is accredited to you and your employees.
There are certain downsides to personal financing. Networking plays an essential role in spreading your word and expanding business. When you are investing your startup by your capital, you don’t have enough networking. Additionally, when investors from outside are involved in the business, it brings up a mesh of expertise, industry knowledge, and ideas. And the more diversity there is, the better the outcome.
Friends and Family
This option of startup funding means lending money from your friends and family to meet business finances. A published report of the Silicon Valley Bank for the year 2020 showed that 16% of startup fundings were from startup owners’ close relations. It is an open reality that if you are going to raise capital from an angel investor, bank, or venture capitalist, you will have to prove business success even before the business has started. However, friends and family members know you, understand your business idea, and they will trust you more than any other.
The benefit of this capital raising is a positive message for prospective investors that you have family support and believe in your business idea.
However, you must be honest with your friends and families about the risks associated with your business. They must be comfortable with the fact that business might fail.
One of the main downside to financing your business by close acquaintances is free suggestions and unnecessary involvement.
Startup funding by angel investors
Funding your capital by investments of angel investors is a viable option. Angel investors are wealthy people who invest their money in your business idea, and they get stakes in your business, either equity or debt. The reason for funding your startup by angel investors is the favorable investors’ favorable rates compared to the traditional lenders.
The startup funding made by angel investors is solely based on their understanding of your business idea and his faith in your abilities. In some instances, angel investors prefer to invest in niches that are related to their expertise. Therefore, a free tip from our side to win angel investors is to make the right pitch to target your prospects.
You may also be interested about the differences between Angel Investors VS Venture Capitalists
Startup funding by Bank Loan
Undoubtedly you have to follow a long procedure to apply for a bank loan. Getting a loan approved is yet another story. Still, a bank loan is one of the best options for startup funding. However, only 4% of the startup funding in the year 2020 was sourced from bank debts. The process is not as easy as it was in primitive times, but there are many small business loans. And founders can benefit their businesses from these loans.
In crowdfunding, you collect small amounts from a large group of people. A compelling pitch explaining your contribution to the sustainability of the world often works to convince the investors.
There are three types of crowdfunding.
The investors will get a proportionate stake in the ownership of the company. This model closely relates to that of venture capital.
People will invest with the agreement of getting their principal amount back with some return after a certain period.
Ever heard of early bird discounts? Your customers fund your business idea. Let me explain it. I wanted to purchase a book on copywriting. The idea is, you offer your customers a nonfinancial incentive against there investment. It can be giving early access to the product before its launch or a special discount for being an early bird. However, we advise you to be honest when offering incentives to your customers. Overpromising might cost you what it cost to rap group Run The Jewels for a joke in crowdfunding.
46% of the startup funding in 2020 represented capital raised by venture capital firms. Venture capital provides the startup funding needed to take off the startup from the ground. Against the capital funded, they claim a stake in your business. Your venture capitalist firm may require you to allow them an influence on future business operations and decision making. Therefore, if you want to have complete ownership of your business and autonomy over decision making, you should not opt venture capital as your startup funding option. However, startup owners intending to share the ownership and control can safely go for venture capital firms.
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