When you have a great idea to start your own business, what comes to your mind first? The first question you might have is ‘How can I start?’ or ‘Where does the money come to get this thing started?’
Finding the best way to finance your business can be a long painstaking journey. If you already have close friends or family who can invest in your business, which you don’t have to put some of your own money in, that would be a perfect situation. But this is not the case for everyone. There is no one right answer but in fact, there are multiple sources available to secure funds for a new startup project.
Learning to embrace and savor rejection is one of the best things that entrepreneurs can do. Launching a startup is the time to find your ever-optimistic inner child again. By Alejandro Cremades from the Art of Startup Fundraising
Here is a comprehensive list that will help raise capital for starting your own business.
1.Prepare a detailed business plan
First of all, before looking for potential investors, creating your own business plan is the most critical step. Having a detailed business plan will increase your chances of securing funds, as well as getting higher growth rates. According to the study by the Department of the Economic University of Oregon, the chances of securing funds can increase from 14% to 29% if you have a business plan.
It is important because potential lenders and investors will want to understand the essential details of your business idea. In particular, they will want to see the breakdown analysis of how long it will take for your business to turn a profit. If you can engage qualified accounting talent who can help your business plan with an accurate financial projection for the next three to five years, this will make investors decide easily whether to fund your business or not.
Startup financing is not just about raising funds, it is a holistic process that involves proper business planning with thoughtful growth targets, deciding business valuation as per the current market standards, planning potential exit options for investors. By Nucleus Partners
2.Raise money through bank loans
Once you have a solid business plan, it will help you have a better approach to get bank loans. There are two different types of bank loans you can look for: working capital loan and funding.
The working capital loan is used to provide the working capital that covers a company’s short-term operational needs, which helps pay for everyday small-business expenses, such as payroll and inventory. Funding from the bank would involve providing the business plan and valuation details, alongside the project report on which the loan was sanctioned.
For example, a US online banking platform, Kabbage offers fast access to working capital providing short-term funding up to $250,000. It can be ideal for small businesses seeking loans to cover expenses such as small inventory needs, advertising campaigns or any other purchase geared towards sustaining growth.
3.Raise funds by startup pitch competitions
Participating in a startup pitch competition could be one of the most powerful experiences for startups, especially in the early stages of the business lifecycle. It can help to bring your business to the next level, providing with different offers including meeting with possible investments, media exposure, and potential strategic partnerships.
The reason why pitch competitions have become increasingly so popular is that you can find such events wherever you are in the world. It could be costly and time-consuming as a small startup to attend such events as sometimes are required to pay a fee to enter. However, once you find the eligible and relevant event which have themes and topics matching your startup concept, more benefits will be waiting for your business. You will not only find business partners or investors but you will also get higher chances to meet different potential investors, partners, team members or even a product buyer.
Another popular way to raise funds for your business is by using an interactive social platform called Crowdfunding. This platform might be the quickest way of obtaining funds for a new business, which allows individuals to pitch their business ideas or challenges to an online community of investors and people who are willing to support the ideas. If the idea is attractive enough, anyone can contribute money toward helping a business.
Moreover, crowdfunding allows companies to showcase different products which can be used for marketing and advertising. This also helps to see which products are more popular and minimize the risks of the investment before moving forward.
5.Venture capitals for your startup
As the number of startups is increasing, the number of investors has also grown. Venture capitals generally come from well-off investors, investment banks, and any other financial institutions, and help finance startup companies to have long-term growth. It can also provide with other resources that can contribute to the success of the company, such as technical, managerial expertise with a mentorship program.
However, a venture capital investment tends to seek a bigger business that is already generating revenues after passing the startup phase. They also want to make their investment back, as soon as possible, within three to five years, which can be hard for smaller businesses to reach within such a time frame.
According to the data analysis by the Martin Prosperity Institute to identify which industries attract the most venture capital, they are more interested in software and technology sectors, rather than telecommunication or consumer products.
Are you prepared with your strong business plan with realistic financial projections? Which path would you like to take toward raising funds for your business?
Photo credit: Flickr CurrencyFair
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