To start your business, You need to take your idea from conception to reality. To do this, you will need a minimum viable product (MVP), which is ready to go to market. Once you’re serious about your business, you will need startup funding. If you’re a recent graduate from college, your starting capital will be around $2,000… but that is not enough to get your startup registered.
Where can You Get Startup Funding?
It is difficult to raise your startup funding, especially if you don’t have a product or service to offer. Your idea will not be believed by others. The bad news is that your startup won’t be funded by anyone who doesn’t believe in your idea.
What do you do?
Go to your family. You can convince your mom and dad to believe you, even if it is trash picking – trash can also be sold.
In fact, some of the most successful business stars, including Donald Trump, Nick Woodman, Kim Kardashian, Elon Musk, and Jeff Bezos took money from their parents in the beginning stages of their businesses. With hard work and smart decisions, they were able later to convert this initial startup funding into millions of dollars for their families.
You can survive for up to a year if you have financial support from your family. But what if you lose that funding? Continue reading.
Types Of Startup Funding For Business
Multiple rounds of funding are necessary for a startup to survive. Let’s find out how many rounds an average startup has to go through, and why.
Seed funding for startups
Seed funding is the first funding source for your startup. It can range from $50,000 to $500,000, depending on the quality of your presentation and how much you need to get your business off the ground. It is one of the riskiest investments.
You can’t prove your business will survive. Your investors will be able, if the business survives, to double their investment in a few years. If they fail, they will lose their entire hard-earned money within months.
10 Ways to Get Startup Funding
Let’s now learn what startup funding is and how it distributes equity to each investor. Now let’s go to “How to get funding”
1. Crowdfunding for Startups
Crowdfunding is one way to raise startup capital. Crowdfunding can be one of the most efficient and secure ways to raise funds. Why? Because they won’t ask you to return it. They only want the product or service you promised. How does this work?
Check out Kickstarter, Indiegogo, and Patreon to see which crowdfunding platforms allow people to fund startups. The crowdfunding strategy has been used by many reputable startups.
Tips to Crowdfund
- Make a prototype or product that solves a problem.
- Take a video of the product’s use.
2. Angel Investors
Private investors who invest in seed funding are called angel investors. Because of the higher risk involved in investing in new companies, angel investors are often called “angels”. If you have the right connections, it is easy to find an angel investor for your business. They can find them through your network. Search on social media sites and send them your startup pitch or by attending startup events.
Tips for Raising Angel Investment
- Don’t wait until the right moment to pitch. Build relationships early. You never know when the right deal will come along.
- Develop a solid product, and get as much traction as you can. Do not look for investors. Let them come to your company.
3. VC Firms
Venture Capital Firms are limited partnerships or limited liability companies that invest in startups with the potential to generate a high return of investment for their investors. Venture capital firms are always looking for startups who want equity in return for funds. You can also contact them via their websites, or at startup events. Attending startup pitching sessions is the best way to meet VC firms. Shark Tank is a great example. Here, you pitch for investment to the sharks.
Tips to Attract VC Firms
- As we have already mentioned, VC firms will not deny you an application if your product is a winner.
- This is the only thing VC firms will see about your startup. If they are able to get a return on investment. They will double your money. Customers will be happy to invest if your product is able to do that.
4. Startup Incubators
Startup incubators do not usually require equity unless they provide some funding. They simply incubate, mature, and apply the startups to accelerator programs. Incubation can last anywhere from three months up to one year. Many incubators offer mentorship and office space. They also help startups meet angel investors. Some incubators will give a percentage of the startup’s capital in exchange for funding. This information should be verified before you apply.
Tips to Get into a Startup Incubator
- Make sure you have a product that works. Mentors are also welcome to offer feedback.
- Your network should include the right people. Get attention to your product.
5. Startup Accelerators
As the second stage of your startup founder training, an accelerator is a good option. Ask yourself these questions before you start looking for one.
What accelerator do I need?
Your startup might be gaining traction on its own and doesn’t require you to join an accelerator. A Minimum Viable Product (MVP) is required by accelerators. Build an MVP first. Make sure your product is already on the market. If the product isn’t already on the market, most accelerators will reject it. Contrary to incubators, accelerators are for a limited time and are heavily mentorship-driven.
The big question is now. How does a startup accelerator fund a startup business? Many accelerators will let startups receive funds in return for equity.
Tips to Join An Accelerator
- Once you have achieved traction, accelerators will show interest in your startup.
- Many accelerators will help you find investors. Make sure to provide a solution-oriented product.
6. Pitching competitions
Pitching competitions are a great way to raise funds for your startup. For those looking for feedback on their startups, pitching competitions are a great way to do so. Shark tank investors, also known as sharks offer equity to startups in exchange for funds. Start looking for events in your area that offer pitching competitions and sign up. To enter the pitching competition, you may need to pay an entry fee.
Tips to Enter Pitching Competitions
- A great startup idea is the best way to get into a pitching competition.
- Next, create a simple but persuasive pitching deck.
- The majority of pitching competitions are open to unique ideas. Before pitching your startup idea in competitions, be creative.
7. Bank Loan
Bank loans are also available for startups. The markup that banks charge on money is usually between 12% and 15%. Before you can take out the bank’s money, you will need to provide a guarantee. This could be documented from your home or other assets that you own.
Bank loans are not a good option. If your startup fails, neither your business nor your assets will be left behind.
Tips to Get a Bank Loan for Your Startup
- Since the business is still in its infancy stage, you will be eligible to receive personal loans.
- Banks have strict deadlines for loans. You need to do your homework before you apply.
Also read: What are the Types of Business Loans
8. Family and Friends
As we have seen in the example, most businesses prefer to receive funding from their family and friends. Seed funding is money that friends and family give you. For the funds to be available, you will need to share a percentage or a portion of your startup equity with them.
Let’s suppose you have family and friends who help you start your business. There are two options. One, you can invest in them and give them equity in your company. You can also borrow money from them, and then repay it at a later date at a mutually agreed interest rate. Your family and friends will be the owners of the business when you make the investment. The transaction is finalized once all loans have been paid.
Tips to getting Startup Funding From Family and Friends
- Professionalize it: Document your commitments and discuss financial options.
- Demonstrate the startup plan and keep them informed on a monthly basis.
9. Govt Grants/Programs
Startups can get grants from the US government. Grants are not free. USA.gov funding options state that grants can only be granted to non-profit startups. Loans are only available to non-profit startups in the USA. However, grants can be obtained from the government if you are not a resident of the USA.
Tips for Govt Grants
A plan for your company is the best way to submit for govt grants. With the lender, you will need to create a loan package. This will ensure that the government is able to pay you if you default.
There are strict guidelines that govern the number of employees you can have in certain countries. These policies should be read.
This is the one option we love. Bootstrapping can be used by anyone who wants to start their own business. Bootstrapping is the process of starting your own business using your own resources and funds. You don’t need to rely on external funding. This is a great way for you to retain full ownership of your startup, and make it self-sufficient. Bootstrapping comes with its drawbacks. Bootstrapping is not a way to scale your business. If the business fails, you will lose all of your hard-earned cash.
Tips to Bootstrapping
- Start a side-gig to support your business,
- Ask your co-founders for money.
- You should only start a business if you are certain that you have the funds to sustain it for three years.
Now that you are familiar with the different types of startup funding, it is time to start developing a business plan you can make a reality. Although we do not recommend that you start your business as a sole proprietorship, it is a good idea to limit liability in the early years.