Startups have always been a vital part of the American economy. They are responsible for creating new jobs and innovative products, and they are often the driving force behind economic growth. Unfortunately, starting a startup can be expensive, and many entrepreneurs struggle to find the funding they need to get their business moving forward.
When you’ve got an excellent idea for a startup, you need a good plan to ensure its success. Unfortunately, a lot of startups fail due to a lack of funding. In order to make sure your startup doesn’t fall into this group, you need some smart and proven ways to get it funded. There are a lot of options for funding your startup. You can seek out venture capitalists, angel investors, or government grants. But before you go down that road, there are a few other options you should consider. One option is to bootstrap your startup. This means using your own funds to get your business off the ground. You can also look for private loans or crowdsource funding.
Whatever option you choose, make sure you do your homework and compare all of your options before deciding.
Things to Keep in Mind When Seeking Funding for a Startup
When you’re trying to get funding for a startup, here are a few things to keep in mind: The first thing you need to do is outline your business plan. This should include all essential information about your business, including how much money it will take to launch, what the company does, and how much money it will make. Once you have this written down, start looking for potential investors.
When you meet with potential investors, make sure they understand everything they need to know about the company. You want them to be fully informed about your business before deciding whether or not they want to invest in it. Be professional at all times when dealing with investors. If they think your startup isn’t worth their time, they won’t invest.
Here are some smart tips for securing money for your startup.
Seek Easy Sources of Funding First
To begin with, you can attempt to secure easy sources of funding. This may include using your own savings to get the startup going or reaching out to friends and family. These options will typically cost you less, and they can be a great way to start up a business without much initial investment involved.
Self Funding: Bootstrapping a Startup
One of the best ways to fund your startup without going broke is to bootstrap it yourself, for instance, using personal savings. To avoid taking on high-interest debt from venture capitalists or banks, some entrepreneurs choose to fund their startups entirely on their own.
Naturally, the more you fund yourself, the more control and equity you retain. You get to set your own standards for success without having to reach benchmarks set by investors. At the very least, be aware of what resources you have available and what you’re willing to sacrifice.
This is an incredibly bold move, but it can pay off in the long run. You keep overhead costs down by using your own money and have more control over your business venture.
However, bootstrapping a startup comes with its own challenges. It isn’t easy to put every last dollar of personal savings into getting a new business up and running, and if things don’t go well, that investment could be lost forever. Once you start taking outside investor money, on the other hand, you have a safety net. Investors are much less likely to let you fail if they have a stake in your company. In order to bootstrap successfully, you need to keep costs down so that the money you invest goes as far as possible.
In order to bootstrap successfully, you need to keep costs down so that the money you invest goes as far as possible.
Some great ways to do this include:
Cutting Marketing Expenses
One of the biggest startup costs for any business is advertising. If you can cut these costs or find alternate forms of advertising, your cash on hand will go further toward growing your business.
Finding Inexpensive Office Space
When it comes time to look for office space for your startup, don’t settle for any old place with high rent fees. Try looking around town for an office space that suits your needs but offers a price you can afford.
Negotiating for the Best Value
When it comes time to purchase office supplies or other equipment necessary to get your business up and running, try to negotiate for the best value possible. You may be surprised at how low some of these costs can go when you shop around and negotiate with vendors.
Locating Suppliers Near Where You’re Headquartered
If keeping costs low is your number one priority, make sure you find suppliers in the area who provide the services and products you need at a discounted rate. For example, if you run an apparel store and need graphic design work done for printed materials such as flyers or posters, seek out a designer in town who will do the work at a discount. It’s possible to bootstrap your startup, but it can take some time and planning before you’re able to see results.
One of the best ways to do this is by networking with other entrepreneurs in your area. If you can meet up with business owners who are willing to share their experiences and advice, your chances of success increase exponentially. You may even be able to locate an investor or two through this sort of network; people are usually more than happy to invest in someone who they know personally. If you find that it’s not feasible for you or your company to produce startup funding yourself, don’t despair—there are plenty of other options available that allow you to keep your company in business.
Friends and Family
Next, look to family and friends who you find reliable and willing to invest in your business; this will likely be the least expensive type of startup funding possible. However, these investors can also be some of the most demanding, so be prepared for a lot of pressure to perform well once they’ve invested their money in you. Putting a campaign through your social media to reach them can be beneficial too. They can then share this with other people they know, expanding your reach and helping you find suitable partners.
Reach Out to Business Contacts
You can also reach out to business contacts that you’ve networked with; see if they can direct you to others who will likewise be willing to help fund your startup. These investors are usually less demanding than family members but will still expect you to run your business in a professional manner. For example, they will likely want at least monthly updates on the company’s progress. You may have to offer shares of ownership or other incentives to entice them into investing.
This smart funding tip nearly goes without saying. Crowdfunding has proven very successful for many startups, so you’d be remiss not to consider it. To start, you need to make a reasonable goal for funding. Again, use your family and friends to help you spread the word.
Using crowdfunding sites like Indiegogo, you can actually sell products to gauge market interest. The success of your campaign can be used to pull in investors down the road.
Apply for a Business Loan
If crowdfunding isn’t an option, it may be time to explore the world of small business loans. These types of loans are designed specifically with startup entrepreneurs in mind; they offer low-interest rates and flexible repayment schedules so that even those who have little money saved up can find funding at reasonable rates. You can find a variety of small business loans online or through your local bank branch. A traditional business loan is a good bet for startup financing, but lines of credit or a business credit card can provide emergency funding in times of need.
Another smart way to fund your startup is alternative lending. Plenty of sites facilitate peer-to-peer lending, but you’ll still have to pay it back like any other loan.
However, the advantage is that peer-to-peer lending can be more forgiving, offering lower interest rates than traditional bank loans. This might be a smarter, more flexible option if you have to get a loan.
Venture capital investment is another way small businesses get seed funding. It usually comes in the form of a loan that must be paid back or equity in exchange for partial ownership.
Venture capital firms or individuals provide funding for startup businesses that are believed to have high growth potential. VCs provide the funding, management skills, contacts, and industry knowledge to help increase the chances of successful business growth. It’s important to remember that venture capitalists typically expect significant returns on their investments.
Series funding isn’t one amount of money. It’s several rounds, each with its own terms and conditions, so you can never know for sure how much capital your business will need to grow. It is similar to venture capital in that startups, and early-stage businesses use it.
Typically series funding starts with seed funding and then A, B, C, and D rounds. Often there are many more terms and conditions with series funding than traditional venture capital due to its multiple rounds of investment. However, it can actually be less risky because each round is ensured by different people providing funds over time.
A startup accelerator is a company that helps startups launch by giving them the tools, contacts, and other resources they need to succeed. It’s like a business boot camp that can jump-start your new company by providing you with everything from office space to customer leads.
A good accelerator will help you define your business model, develop a marketing plan, identify your target audience and competition, design your product, work on sales and distribution models, and more.
Several VC firms offer startup accelerator programs; the partner firms provide the funding for the program in exchange for equity in the companies they accept into their accelerators. They usually focus on high-tech startups in the IT or digital media industries. Some may accept other kinds of businesses as well.
Consider An Angel Investor
Angel investors can be just what you need, as they are often wise to the process of startups and businesses. Angel investment can provide you with the funding you need, although often in exchange for a stake in the business.
The other benefit is that they’re often very business savvy and provide you with plenty of advice along the way. If you want to pursue this funding option, look for a list of accredited and trustworthy angel investors, but know that you will need a very impressive pitch to secure an investment.
Small Business Grants – Funding You Don’t Have to Pay Back
There are all kinds of grants available to new and existing businesses. It’s worth the time and effort to research and apply for them. The Small Business Administration (SBA) is a great place to find information and resources on getting government grants for your business.
Unlike other forms of funding, grants are free money. You don’t have to pay it back, much less with interest. But it requires work. You’ll likely have to write a proposal and meet other qualifications.
Consider a Partner
Turning your startup into a partnership can come with some compromises. Often though, these aren’t deal-breakers, and there can be more benefits than not. First, a partnership means you’re at least splitting costs. When you’re just beginning, this can prove very valuable.
Naturally, a partner can provide all kinds of other values as well. They may have complementary skills or have the experience that you lack. A good partner will make your startup more attractive to potential investors. They will widen your base of exposure as well.
Smart Funding Isn’t Only About Bringing In Money
Smart funding is also about spending what you have wisely. If you’re looking for funding from a loan, you’ll need a solid business plan. To raise your chances, you need to show that you plan on spending it wisely.
First of all, use all the free or cheap resources available to you. For printing and flyers, libraries often allow you to print either for free or for very little. Local small business associations are a gift for startups too.
You can get great tips, spread the news about your startup, and do some networking (often for free). Another fantastic tip is to use social media to promote. A good rule of thumb is that whenever you think of spending precious funding on something, look for a free version first or seek out less expensive alternatives.
Here’s an example:
You want to send in documents to apply for a grant to fund your startup. Rather than invest in a fax machine or go to your local copy shop, you can get a monthly internet fax subscription.
Always make sure to manage your finances and spend wisely.
Funding for Startups – In Summary
Startups are gaining a special place in today’s culture. It’s easier than ever for someone with a good business model to secure funding and bring their product to fruition. By making use of smart funding options and maximizing your outreach, you can make it happen. Startup business funding options include angel investment, grants, and partnerships.
It’s valuable to use all the free or low-cost options available as well as choose your investors wisely. Cash flow is king for startups so investing strategically and managing your finances carefully is key. With these tips under your belt, you’re ready to find the funding that works for you.