How do I finance my startup? This is one of the most popular questions startup founders ask at entrepreneurial events and seminars. Lack of funding is one of the common reasons most businesses fail in their first year of operation. The long yet exciting journey between idea creation and revenue generating business is fueled by capital. But whatever you do you must never let money stop you from pursuing your dreams. If you want to start a business but lack the capital, you can still raise finance in a number of ways. Below are five funding options for startups that would help you raise the capital you need for your business;
Self-funding, which is also known as bootstrapping, is one of the most effective ways of raising funds for your startup business. It is not unusual for first-time entrepreneurs to experience challenges when trying to raise finance for their business. This is because the level of trust for them or their idea is low. You can invest in your idea or encourage family and friends to offer support. This is usually easy to raise because it requires fewer formalities and compliances.
Self-funding is quite important because this is one of the things that investors will look out for when considering investing in your business.
Crowdfunding is one of the sources of funding for startup businesses that is fast gaining momentum. Crowdfunding can be regarded as a form of loan, pre-order, or contribution that comes from more than one person. How does crowdfunding works? Basically, an entrepreneur will give a detailed description of his/her business on a crowdfunding platform. He must give all the necessary information that would win people’s attention. After reading, consumers have the option of giving money to support the business, this could be in the form of donation or a pre-order.
One of the major advantages of crowdfunding is that it helps to generate interest. It can act as an avenue to market the product alongside financing it.
- Angel investors:
Angel investors are individuals with financial capacity and willingness to invest in upcoming startups. Typically, they work in groups of networks to collectively screen proposals before going ahead to invest. They usually offer mentoring in addition to capital. This form of investment generally occurs in a business’ early years where investors expect equity of up to 30%.
- Venture capital:
These are professionally managed funds that invest in companies which have huge growth potentials. These funds usually invest in businesses against equity and leave after an IPO or if there is an acquisition. They provide funding, expertise, and mentorship, while also acting as a litmus test for the ultimate direction a business is to follow.
VCs are apt for startups businesses that have grown beyond the startup phase and are already generating revenue.
- Incubators and accelerators:
Incubators and accelerators are funding options that are available in virtually every city and assist hundreds of startups every year. Incubators and accelerators are often used interchangeably but there are some fundamental differences between them. While incubators act as a parent to a child, providing shelter tools, network, and training needed by a startup, an accelerator does all of these and help the business to “run”.
These programs typically last between 4-8 months and business owners are required to commit time to this program. These programs also act as an opportunity to make good connections with mentors, investors, and other startups founders.