8 Startup Funding Sources: Where and How to Get Your Startup Funded in 2021
Starting a business can be challenging. It’s not as simple as getting a new idea about your product or services.
There is the uncertainty of whether your business will gain traction or not. Most small businesses fail, and it’s mainly due to financial issues. It’s true that you can save up before getting started with a business. However, keeping your business running means you need more than just your own money. At some point, you’ll find yourself needing third parties to fund your business. In this case, it’s important to know your funding options ahead of time. We have listed below some funding sources for your startup business.
Where To Get Funding For A Startup Business?
To have a successful startup, you’ll need to invest in other aspects like marketing. Now, you could learn how to determine the best marketing strategy for your company. However, that will take up much of your time. Hiring a startup marketing agency will help you focus on growing your business instead.
They cover pretty much everything. Brand development, marketing, and advertising. And best of all, some startup branding agencies can connect you with future investors. This is important for any startup business, which will be discussed briefly later.
While this is true, investing in startup marketing can be expensive if you’re just starting. It’s like the chicken and egg dilemma. Luckily, there are other funding options to avail a startup branding agency’s services.
Bootstrapping or self-funding is a good way of getting funds for a startup. If you’re still in the early stages of your business, it’s difficult to immediately get traction. It’s one of the challenges of starting a business. You can take your chance with some investors. However, without startup branding, you’ll find it hard to convince them to fund your business.
Investors won’t lend money to a startup that is bound to fail. They wanted to partner with businesses with strong chances of success. That’s why most first-time business owners start with investing in personal resources. This means payments for business expenses will come from your own pocket.
While bootstrapping is difficult, there are some advantages to it. For one, if you survive self-funding, that means you have a good business strategy. And because of that, investors will be attracted to funding your business in the future. They usually consider this as a favourable aspect. And, it is extremely satisfying to see your business grow from your hard work.
However, this is only ideal when your business has minimal needs. Some startup firms need funds from the start. If you find yourself in that category, this method is not the best solution for you.
2. Family Members And Friends
Aside from bootstrapping, your family and friends are also a great source of startup capital. This is one of the simplest ways of getting funds. You can establish your own conditions. Plus, these are the people who know you best. You don’t need to present a track record of previous loaning activity. That is to say, that you asked them properly. If not, there will be consequences not only to your company but also your social life. People reported feeling hurt, as well as resentment towards family and friends. And some even said it resulted in irreparable damages to their relationship. To make sure you’re doing it right, here are some things to consider:
- Think about how it will affect your relationship with them when it gets out of hand. Are you willing to risk your friendship over it? Will there be ways to settle the problems that will arise?
- You should know why they funded your business in the first place. Do they want their money back or is it a gift to you? How long will they fund your business? These are some of the questions that you should know the answers to.
- The terms and conditions for funding should be clear to both parties. To do so, you want to have it written down on paper. Lending money to friends and family can seem informal. However, it’s best that both parties have a clear copy of the terms.
- Even though they are family, they need to know what’s going on with the business. Having open communication with your funders can prevent future problems. They need to know you’re both on the same page.
Having full support from your friends and families is the best foundation of a good business. Many successful businesses today resulted from good relationships with friends.
Crowdfunding is a relatively new method of funding your startup business. It’s the equivalent of getting a loan, donation, or investment from multiple people at the same time. To get funding with this method, startup owners need to post on a crowdfunding site. It usually contains a thorough description of the business, including goals and plans. The platform helps you reach out to people who will be willing to invest in your firm. When they like your business concept, they will donate money. Those who donated will make online commitments in exchange for a pre-order. Anyone can make a financial contribution to a startup that they believe in.
Moreover, it’s not just useful for getting initial funding for your business. You can also raise funds for your products in the future. With an effective startup marketing strategy, you can use the platform to your advantage.
4. Venture Capital
Venture financing is not for every business owner. Investors in this group are more focused on funding technology-driven companies. They are more inclined towards firms with the potential to grow in certain industries. These include industrial technology, communications, and biotechnology industries. Their main goal of investing is for firms to carry out a promising yet risky initiative. This includes handing over a portion of your company’s ownership or stock to them. Venture capitalists (VC) also anticipate a healthy ROI. It means that the company can now sell stocks to the general public. Just make sure to find those with experience and knowledge that match your business. A marketing agency for startups can help you look for VCs that your firm needs.
5. Angels Investment
Unlike Venture Capital, you will be dealing with only one person with Angels Investment. This person is known as an Angel, hence the name. Mostly rich or retired executives, they invest in small businesses run by others. They are usually industry leaders who offer their experience and networks. Alongside these, they are also experts in the technical and/or management fields. This group of investors often fund between $25,000 - $100,000 in the early phase of a firm. If you need larger investments, you should turn to institutional venture capitalists. Looking for them means you have to contact specialised organisations. You can also do an internet search on angels’ websites.
6. Accelerators Or Incubators
Joining an accelerator (or an incubator) programme is another potential fund source. Business incubators are more focused on the tech industry. They assist emerging firms in different stages of business development. Usually, incubators will invite startup businesses to share their facilities. Aside from that, they will also share their administrative, technological, and logistical resources.
The incubation period can extend up to two years in most cases. When the product is ready, the company leaves the incubator’s grounds. After that, it can now go into industrial production on its own. Businesses with this type of assistance are usually in cutting-edge fields. These include biotech, multimedia, computer, and industrial technology.
7. Government Grants
If you think about investors, the government will be the last thing on your mind. Many people are unaware that their government provides easy loans or full-fledged grants. New enterprises are a major source of economic development. That’s why governments are willing to assist prospective business owners.
However, these programmes and grants are not widely advertised. To know more about how to qualify for a grant, you can look up your government websites. You can also ask other local startup businesses. Generally, government grants are more focused on projects about science and technology. You will need to provide detailed information about your project. This also includes how you’re going to spend the grant. To get qualified you need to:
- Explain how your project is beneficial
- Enumerate all the expenses you expect to have to work on the project
- Give an elaborate background and related experience of all project managers
Although, there are government agencies that offer programmes for small businesses. For example, the US Small Business Administration has its own investment programmes.
8. Bank Loans
Asking banks to fund your business seems like the best option. However, that is not the case at all. Most banks are afraid of lending money to startups because of the uncertainty of success. And if startup businesses go bankrupt, they will lose their money. In order to get funded, you need to have a good track record. In addition to this, a strong business plan can also help you land a fund.
It is healthy for any business to have multiple funding sources. With this, you won’t have to worry about financial problems in the future. Additionally, having diverse financial sources helps you invest in startup marketing.
Most bankers assume you have other sources of capital. It will be difficult to ask for funding for your entire business process. More importantly, having multiple sources shows that you’re a proactive business owner. With that kind of reputation, you’ll be more qualified to receive funds.