Insufficient capital is one of the top reasons why startups fail. In order to fund all the efforts necessary to launch a business, entrepreneurs have to be creative in finding ways to provide cash for research, product development, salaries, and more. The truth is, while one may have a great idea backed with a strong market need, a business needs money to operate until it becomes profitable.
Access to multiple sources of funding is ideal. Here’s a list of funding suggestions to start with:
- Self-funding AKA Bootstrapping
Fund your startup with your own savings. The advantage of using your own money as you go is you will not be giving away equity while you are still building and growing your company. Depending on how much money you’ve saved, you can either single-handedly fund the business until it becomes profitable or you might need to explore other funding options if your savings are depleted.
Consider tapping into other sources of personal funds such as your 401k. While betting your retirement fund on a business idea is risky, it is a possible option. You will need the help of consultants to help you set up legal requirements as well as an accounting firm for advice.
- Getting help through crowdfunding
Businesses with products with a high market demand may consider the option of launching a crowdfunding campaign. Find the most suitable crowdfunding site for your idea. It helps to have a strong social following so you can share with your families and friends.
Before launching your own crowdfunding campaign, learn from the strategies of other successful campaigns. A sample of products that were triumphant in raising more than their target funds include a cooperative board game, portable stone bake oven, and a smart vacuum bottle that tracks your water consumption. Be creative in telling your story, give donors a sample of the product in return for the donation, and post regular updates on the progress of your project.
- Finding an Angel Investor
Investors are out there looking for the next big idea to support. However, a nice idea on paper just would not cut it. Most investors are seasoned in putting up a business that they will look for proof of your idea’s viability in the market.
Before approaching an angel investor, know their history first. Some angel investors may be known to take particular interest in e-commerce and mobile companies while others are more keen for agriculture or healthcare companies. Your chances of getting an investor will be higher if you are building a company in his area of expertise.
Once you have connected with an angel investor and got a schedule for a pitch, Inc Magazine suggests being succinct and avoiding jargon when pitching. It also helps to know your idea and the industry inside out – from recent developments that could possibly affect your business and the impact of your product to the industry (market research).
- Joining a Startup Accelerator
Accelerators provide startups not only with seed funding but also with business know-how. As the name implies, these organizations provide an environment for rapid startup growth through mentorship and financing. Accelerators select operational startups during seeding round normally in exchange for equity. An accelerator program normally lasts from a couple of months to a year. Investors in startup accelerators serve as a mentor, providing business advice to founders. The most successful accelerators include Y Combinator (Dropbox, Airbnb, Stripe) and Techstars (Uber, Sendgrid).
Before applying at an accelerator, consider the following first: the stage that your company is in (e.g., producing revenue, finding the right team, building the product), the expertise of the accelerator, and your goals. Do your research about the accelerator to know if it will be the right fit for your business once you get accepted.
- Taking out loans
Similar to self-funding, getting a loan from another entity to fund your company ensures that you keep full equity. Consider getting loans from your bank or from your credit card to support your business until it becomes profitable. Shop around for flexible terms and low-interest rates but be prepared to provide required paperwork and loan collateral.
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