Business has always been unpredictable, especially in times of crisis. Some people lose their jobs, while others come up with brilliant ideas that are worth millions. And what if you’ve got such an idea and are eager to start your unique business or project? Where can you find the funds in such a case?
There are plenty of options for raising funds. Of course, you can seek partners, take a loan, or turn to crowdfunding platforms. Today, we want to dig deeper into this topic and present you with a few interesting ideas that can help you raise funds for your startup.
Types of Investment
So, you are an entrepreneur planning to attract investments. For an effective search for funding, it’s important to remember that each investor typically specializes in specific industries and stages of company development. Therefore, it’s crucial to focus efforts on investors whose interests align with your project.
Additionally, you should determine which type of financing suits you.
Equity Financing
This involves investments in exchange for a share in the company. It makes the investor a co-owner of the business, providing them with the ability to influence the management of the company and receive dividends.
Debt Financing
This includes loans and credits that are to be repaid on a specified date with interest. However, if the business is just starting, a newbie entrepreneur is unlikely to secure a loan from a bank or private investor unless it’s backed by valuable assets such as property, a car, or a house.
Sharing a stake in the business with an investor becomes a viable option in such cases. Ideally, the investor should bring not only money but also expertise and connections to the project.
Equity financing is also beneficial for venture capitalists; in case of success, they can earn a substantial profit, often measured in thousands of percentage points of the invested funds.
Hybrid forms of financing also exist, such as convertible loans. It grants the lender the right to acquire a pre-agreed share in the company after a certain period or upon the occurrence of specific events. This investment form is prevalent in Silicon Valley.
Options Available for Startups
Let’s explore the most popular sources of financing for businesses in the early stages, which are the seed, startup, and expansion phases.
Friends and Family
This method of attracting investments is jokingly called the ‘3F’ — family, friends, fools. Indeed, your close circle of acquaintances is the first place you can turn to borrow money. However, it’s crucial to understand the risk of damaging relationships if the project fails and repaying the debts quickly isn’t possible.
Payday Loans
You’d be surprised to learn how many startup founders turned to payday loans in the early stages of their businesses. And there are a few obvious reasons for that: they provide money quickly, and the requirements are minimal.
Some organizations offer no credit check payday loans, which is a great option for young people with a short credit history. Anyway, if your business requires quick funding, you can always use a payday loan to support it.
Business Angels
A business angel is a private investor who funds projects in their early stages. In exchange, they acquire a stake in the company. Typically, their goal is to profit from selling this stake when the company grows.
There is also a dividend model, where the investor relies not on the growth of their stake but on a share of the company’s future profits. In this case, they receive their benefit in the form of dividends.
The ideal option for a startup is when you manage to attract investments from an experienced business angel with connections in the same industry as your project. In this case, the project’s chances of success significantly increase.
Business Incubators
Created by large businesses or universities, they offer express training programs for interesting projects. Within these programs, experts assist startup founders in understanding the market, refining the product concept and business model and even finding initial customers.
It’s also an opportunity to build valuable connections with investors. Many accelerators, post-program completion, organize demo days for their projects, inviting potential investors — business angels and investment funds.
Grants and Competitions
They provide non-repayable financing that startups can receive from government or commercial funds. To obtain a grant, the project must meet the fund’s requirements and pass a competition. After receiving a grant, the fund will monitor the designated use of funds, as grants can only be spent on pre-approved expenses such as rent and renovation, equipment and materials, etc.
Conclusion
Getting funds for your startup requires thorough planning. As an entrepreneur, you’ll need to explore different ways to get that money, each with its advantages and disadvantages. But you need to remember that the whole startup business isn’t just about getting funds. It’s also about making connections, finding experts, and teaming up with those who can help your business grow.
