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Whether you are starting an online small business from your home or you are aiming to create a Fortune 500 company – you cannot do it without capital, money or funds. No matter how innovative your business idea is and it doesn’t matter how passionate you are, if you don’t have money to start a new business, you just cannot do things practically. You cannot do anything.
Shortage of money can paralyze even the best business ideas.
It is funds – liquid funds – that you need to kick start your business.
It is almost always harder to raise capital than you thought it would be, and it always takes longer. So plan for that – Richard Harroch.
If you are unable to raise money, here are a few easy ways to raise funds for your startup.
Friends, Family and Relatives
The number one and the best ever way to raise money for a new business is to reach out to people who know you personally. There must be people in your social circle that know you personally and know you deep inside. These are the people that will be willing to lend you money for a startup just because of personal relationship.
There are certain benefits of borrowing money from family and friends like you don’t have to pay interest and there are no hard and fast rules and terms. At the same time, there are drawbacks to it as well for instance, in case if your business fails, you won’t be able to return money which will badly impact your personal relationships.
The best thing about this type of fundraising for a startup is that no matter what type of business idea you have, you will get funds. Since you get funds on the basis of your personal relationship and not on the basis of business idea. So if you think that you have an orthodox business idea but in your point of view, it will work, you should contact your friends and family members for raising money for your startup.
Before you seek out to your personal contacts to raise money for your startup, make sure that you have a business idea, a dedicated team and rigorous business plan. You need to put in a lot of effort in business proposal because you normally get only one chance to raise money from friends and family for a business in your entire lifetime. If you fail to payback, there is not second time. Therefore make sure that business proposal and business idea is really powerful.
Better make it work in the first go.
Crowdfunding
Crowdfunding is a new way to raise money online through websites like Indiegogo. It is a new rather emerging fundraising method where entrepreneurs raise funds from a large group of people in relatively small amounts instead of getting all the capital from one or two investors.
In 2013, crowdfunding was a $5.1 billion global industry. This means a lot for your business.
If you are interested in raising money with crowdfunding which is really one of the easiest ways to raise funds for your startup, then be sure that it can only be done online via crowdfunding platforms like Indiegogo, Kickstarter, RocketHub, Fundable and others.
You have to create an account on one of these websites, post your business idea and proposal, financial strategies, details of the product, audience, forecasted cash flow and income statements for first year, how much money is needed, how money will be used and so on. You also have to mention as to what lenders will get in return. You can choose to give them product, a reward like a smart phone, share in the business in the form of shares or you can return them funds after a certain time period with interest of course.
There are different crowdfunding models including reward based, debt and equity. For a startup, reward-based crowdfunding campaigns work best because you don’t have to return money or share your ownership in the business.
You have to mention as much details as possible about your business so as to tell people about your business. Else they won’t give you money.
Once you have your project there, people will give you money. Once your project is funded, you can withdraw money and get to work.
Sounds interesting, of course it is but here are a few issues with crowdfunding.
Not every project gets fund and attention from audience. Thousands of campaigns on more than 600 crowdfunding platforms fail to raise any money. Not every campaign gets funded on crowdfunding platforms.
There are certain things that you have to keep in mind if you want your crowdfunding project to be successful:
- The way you describe your business, product and everything else makes all the difference. Tell a story, be interesting. Become part of the story to get noticed.
- Of course your business idea makes all the difference. If you have not anything new to offer to the audience, why would they give their money to you? So try coming up with something new, creative, innovative or in other words, something out-of-the-box.
- What response you get in first 24 hours of posting your campaign. This is crucial at almost all crowdfunding websites. Projects that receive a lot of funds initially (in 24 hours) are featured at the homepage of the crowdfunding website and that’s where your project is seen by millions – literally. So your aim should be to really do well in first 24 hours.
In order to make your crowdfunding campaign successful and to reach your funding goal, you should reach out to your target audience – which is the target market of your business or final product. Tell them about your product and how it will solve their problem. Show them how your product will change their lives. And then send your target audience to your crowdfunding campaign as soon as you post it so that these people, who are actually interested in your product (or business), can fund you because they need the product.
In return, you can give them your product (what they need) for free on launch day. This is not a bad deal. This is how you get your business funded from your customers.
This is one solid scientific method to raise funds successfully via crowdfunding by Greg Jacobs who raised $110,786 in 24 hours for one of his products from crowdfunding.
There are other methods as well that can be used to generate money for any startup from crowdfunding platforms.
Angel Investor
An angel investor is an individual investor who provides capital for a startup. An angel investor will invest money in a startup in return for equity or debt.
In case of equity, you have to share ownership with the angel investor which can be up to 49%. In case of debt, you have to return money after an agreed upon time along with an agreed interest.
This is a rapidly growing industry in USA, UK and in several other parts of the world. In USA, more than 67000 startups are funded by angel investors every year. It is a $23 billion industry in USA.
You definitely have a chance to find an angel investor who likes your business proposal. Gust is one of the best places to find angel investors for a startup. Other websites include AngelList, SeedInvest, Seedrs (for Europe) and FundersClub.
Finding an angel investor is the hardest part of the game. If you have powerful as well as complete business proposal, there are fair chances that it will get attention of more than one angel investors. But for generic business ideas, it will not work.
There are certain benefits of raising money for a new business through an angel investor. You own your business fully after paying back your angel investor in case of debt borrowing. Additionally, you don’t have to run after several people for money instead there is one and only one guy who funds entire business.
On the other side of the picture, there are certain drawbacks as well for instance, it is not easy to find angel investors. Secondly, if your business fails, consider yourself in deep trouble.
Venture Capital
A venture capitalist is basically a large scale investor or a professional team. Venture capital is almost similar to angel investing but venture capital is normally used to fund larger startups that are stable and have the potential to grow rapidly. Small startups with limited return on investment do not usually interest venture capitalists
By definition, venture capitalists invest in startups that rely on a novel technology or a business model that’s really high tech. This is one reason why it is not so easy to get venture capital funding to raise funds for your startup.
Venture capitalists invest their capital in a startup in return for equity and control on the business. Since these are professionals so you should be ready to share control as well as ownership of your business. In fact, you have to be extremely flexible if you wish to get funded by venture capital.
According to experts, having a startup funded via venture capital is the most ideal situation because you not only get funds but you also get help with decision making, management and so on.
On the other hand, entrepreneurs don’t seem to prefer venture capital much to raise money for a startup since they have to share control, ownership and at times even have to let go a lot in the process.
Around 21% of USA GDP comes from venture capital companies. In 2014, venture capital firms invested $4.2 billion into their funds while in 2013, they invested $6.3 billion.
In order to raise funds for your startup through a venture capital company, you must be flexible, you must have a large-scale business idea with a potential of a high return on investment and it must be a high-tech novel idea.
Surely, this capital funding is not for small businesses.
Top venture capital firms in US include:
Incubator Funds
Incubator funding is a sort of unorthodox way to raise funds for your startup. An incubator program is a special program that’s offered by business incubators with an aim to help startups grow quickly. By their very definition, an incubator program’s aim is to help entrepreneurs in starting and running their business.
After getting yourself enrolled in such an incubator program, you not only get training and mentorship but at the same time, you get funding as well. Though this funding is not very large (normally a few thousand dollars) but at the end of the program or even during the program, you get a chance to present your project to angel investors and venture capital firms.
Majority of the business incubation programs show their best projects to investors so you definitely have a great chance here.
Even if you don’t get a chance to pitch your business to an investor, you will still learn a lot in terms of running a business and getting started with it and you will develop links. These networks are really important in the long-run.
Some of the leading incubator programs include 500 Startups, Y Combinator, LaunchBox Digital and TechStars. You can also read this post at Inc. for 10 best startup incubator programs in US.
Incubator funding is best for small businesses like online stores or if you are starting a new click-and-mortar business. You don’t have to share anything with anyone while learning a lot of real stuff from real guys. Team at incubation program will help you setup your business successfully and they know how to do it because this is what they do.
But of course, since your aim is to raise funds for your startup, incubation funding will help you get started. Rest of the funds can be raised at the end of the program where angel investors are invited and entrepreneurs are allowed to pitch their proposals to them.
If, for your startup, incubator funds are enough, you don’t have to go for angel investing. Instead focus on your business in making it better.
Don’t forget to read pros and cons of incubator funding.
In order to raise money for your startup via incubator funding, you must join an incubator program. Joining an incubator program is not easy because you are not the only one interested to get in. Therefore to ensure your entry, you must have a solid business plan and business idea. High-tech and innovative businesses usually get easily into such programs.
Different incubation programs have different requirements, you have to meet the program requirements to get in.
Also, you have to apply for multiple programs to make sure that you are enrolled in at least one program.
Co-Founders
This is an interesting way to raise funds for your startup. You have to find co-founders for your business who will assist you in managing business as well as bring in capital. You can have multiple co-founders for your business.
When finding co-founders, it is critical that you take right people on-board. Co-founders must share similar interest, they must not have personality differences and they must know each other personally. If you end up having a co-founder who has a totally different personality than yours, it will turn out to be a disaster.
Since your intention is to bring someone else on board who will share ownership after investing capital in the business, so terms must be decided. Depending on the amount of capital that each co-founder brings in to the business, you should share equity. Make sure that you hold majority of the shares else you will lose control on your business.
Getting your startup funded with co-founders has both ups and downs. The best thing about this type of startup funding is that co-founders take interest in the business since they now own it.
But at the same time, you will be sharing ownership with someone else so you have to be flexible and you must be willing to accept decisions and do things that you don’t really want to do.
One good thing about raising funds for a startup this way is that you can generate a lot of capital and at the same time, you share responsibilities.
Government Funds
Governments are one of the best sources of raising money for startups but unfortunately entrepreneurs don’t consider government funds while looking for fundraising options for businesses, said by Janet Levitt who is a co-author of a guide on government funding for startups.
Around 2.9% of 2015 budget has been allocated for small business grants in 11 federal agencies. More than $2.5 billion of grants is given to entrepreneurs every year in US.
Of course, your business must be highly innovative and exceed in technology in order to get funding from government. Traditional and not-so innovative business models usually don’t get accepted into the program.
SBIR program is one of best places to start off with. You will find all the details at SBIR’s official website about funds and grants. After going through their application procedure, program details and other details, you get a hint how many chances you have. Even if you have 50% chance, it is recommended to submit your application.
Besides, you can also submit your application for state funding. Majority of the states in US have their own funding programs for startups like NYSTAR and Washington Small Business Credit Initiative.
Despite the fact that only a few number of entrepreneurs apply for government grants in order to raise funds for their startups, there is still tough competition and at the same time, you must have a rock-solid business proposal.
There are a lot of benefits of raising funds for your startup via government grants. You do not share ownership while you get a lot of funds along with support, technical help and assistance of pretty much all type. Though it varies from program to program but generally, you should expect assistance and setting up your business – as the primary goal of government funds is to promote and grow local businesses.
What Type of Fundraising Source Is Right for Your Startup
You have to consider several factors before choosing any of the above ways to raise funds for your startup but two factors that are crucial are capital needed and type of business proposal.
[table id=1 /]There is always something for you out there. You just need to focus. As said by Ron Conway,
Any time is a good time to start a company.
So this is a good time.
